Enter the Central Banks

July 1, 2016

Image: policyexchange Flikr (cc)

Central banks are starting to make it abundantly clear that they are going to take a proactive approach to handling the situation following the UK’s exit from the European Union.

GBP/USD almost immediately tanked 200 pips as Bank of England Governor Mark Carney delivered a speech from London titled: Uncertainty, the economy and policy.

The most important line for traders to take away from the speech is the following:

“In my view, and I am not pre-judging the views of the other independent MPC members, the economic outlook has deteriorated and some monetary policy easing will likely be required over the summer.”

That’s a clear sign that the BoE is preparing to cut interest rates and probably set course for another round of QE stimulus. And we all know how much stock markets love free money!

FTSE 100 Weekly:
Click on chart to see a larger view.

FTSE 100 4 Hour:
Click on chart to see a larger view.

That rally just makes me laugh at how crazy the system we live in is…

S&P 500 4 Hour:
Click on chart to see a larger view.

I’ve thrown in a S&P 500 chart here too and to add some context to the above chart, we spoke yesterday about the higher time frame trend line resistance still being respected further down the track.

Yesterday’s trading session was no different with the the level being respected multiple times before the break out on the promise of stimulus came.

There were pips to be made!

Stack of coins

Just going back to the post Brexit central bank rhetoric and I’m seeing some headlines citing central bankers doing ‘whatever it takes’ to prevent the UK secession from roiling financial markets.

Oh no, they didn’t just say THAT LINE, did they? Remember the last time we were spoon fed this doing whatever it takes tripe from Mario Draghi at the ECB? Take a look at the charts on that blog post compared to where EUR/USD sits today.

Well at least as traders, you can’t be too disappointed with a statement like that. It really is set up to fail and when something is overly priced into a market, that’s where your opportunity lies.

Keep your eyes on this one, it’ll most probably be worth fading.


On the Calendar Friday:
CNY Manufacturing PMI
CNY Caixin Manufacturing PMI

GBP Manufacturing PMI

CAD Bank Holiday (Canada Day)
USD ISM Manufacturing PMI

“Canada Day is the national day of Canada, a federal statutory holiday celebrating the anniversary of the July 1, 1867, enactment of the Constitution Act, 1867 (then called the British North America Act, 1867), which united three colonies into a single country called Canada within the British Empire.”

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Dane Williams – @VantageFX

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