Bank of England Stays the Course

Analisi Giornaliera - 10/07/2015

Central Bank Leaves Rates on Hold Following the Distribution of the Conservative Budget


The Bank of England maintained the key interest rate and left the asset purchase program unchanged as the Tories released their 2015 budget to much fanfare. The first conservative budget in decades paves the way for the government to return to surplus in coming years in a bid to improve debt-to-GDP.

UK Stands Firm

The Bank of England left the key interest rate on hold at 0.50% amid concerns that the risks from Europe may spillover into the United Kingdom. The asset purchase program remained unchanged, at GBP 375 billion amid growing fears that the European Central Bank might choose to go ahead and expand its own asset purchase program to keep borrowing costs low, especially in peripheral nations suffering from rising yields. UK Chancellor of the Exchequer George Osborne released the 2015 conservative budget to parliament earlier this week, marking the first conservative budget in years after the Tories managed to sweep the election, winning a majority of seats. The budget focuses on restoring the government to surplus and avoiding similar budgetary pitfalls that weighed heavily on indebted European peers. Commenting on the state of the economy, Osborne highlighted that UK growth remains the fastest among the G7 nations.


Greeks Backtrack

After dismissing earlier proposals and cuts as too drastic, the Greeks are now backtracking on referendum promises after requesting a three year bailout loan to the tune of EUR 53.5 billion. This strongly resembles a creditor proposal from last month that was shelved before the Greek referendum. After multiple calls for debt relief and restructuring from both the Greek Government and IMF, the comments seem to be falling on deaf ears. While some European nations are supportive of debt haircuts for the Greeks, Germany remains adamantly opposed to any form of restructuring while attempting to extract more dramatic measures from the Greeks after the last rejection. Capital controls in Greece have been extended in light of the situation with European policymakers struggling to get a deal finalized before the Sunday deadline handed down by German Chancellor Angela Merkel. The Euro continues to climb on renewed optimism that a deal is close.


IMF Cuts Global Outlook

Although mainly attributed to the softness in the US economy, the IMF moved ahead with another downward revision in global growth estimates for 2015, reducing estimates to 3.30% growth from a previous 3.50%. However, the United States is not the only culprit with the Monetary Fund also attributing the weakness to the spiraling situations in Greece and China. While 2015 saw the outlook reduced, 2016 expectations for the global economy remain on track to experience 3.80% growth. The IMF in its report cited increased volatility and again requested the Federal Reserve reconsider its rate hike timeline to avoid creating unnecessary risks to the global financial environment. Risk appetite nevertheless managed to stage a rebound with oil prices rallying to the upside and the Yen experiencing another round of weakness after appreciating rapidly following the global risk-off trade. Major global stock benchmarks also continued to bounce back on speculation efforts to shore up Greece and China will bear results.


USDCHF Ascending Triangle Technical Pattern

As uncertainty picks up ahead of the crucial negotiations deadline on Sunday, the brief respite for risk-assets might be over with risk-aversion picking up pace once more. The dollar is set to benefit from the uncertainty as the Swiss National Bank continues to intervene to weaken the Franc and keep the economy protected from external factors. The ascending triangle pattern setting up in the USDCHF is currently exhibiting a strongly bullish bias with the pair currently consolidating between resistance at 0.9515 and a prevailing near-term uptrend line. Should prices manage to move above resistance, it is potentially indicative of a triangle-based breakout to be accompanied by increased momentum and volume. However, a move below the uptrend line could signal a breakdown in the pattern and potential downward reversal in the pair’s recent momentum


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