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FTSE Gets Boost from Yesterday’s BoE Meeting & Today’s Economic Data

fste rallies after boe meeting

The BoE left interest rates unchanged as expected at yesterday’s monetary policy meeting. The key feature of the meeting was that another board member voted for a rate cut.

The additional vote brings the number of members seeking a rate cut to 2 out of 9. Not exactly a significant increase, but it tells the market that sentiment is changing within the BoE. The members Swati Dhingra and Dave Ramsden voted for a 25 basis point cut.

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The FTSE has been rallying over the past months, and the rally has accelerated recently as the market begins to perceive that the first rate cut in a cycle of lower rates is close. The BoE Chief Bailey speaking after the meeting, said that a rate cut in the June meeting was neither “ruled out or planned.”

Today’s economic data was also better than expected:

  • GDP MoM 4%  Previous 0.1%
  • GDP QoQ 6%  Previous -0.3%
  • GDP YoY       2%  Previous -0.2%

Stock markets have been reacting negatively to strong GDP growth since it means the central bank is likely to keep interest rates higher for longer. However, after today’s initial reaction lower, the market rallied to a new all-time high for the 7th session in a row.

Technical View

The day chart below for the FTSE 100 shows a strong rally in a bullish market. The last 7 sessions have led the market to new highs with an almost vertical slope. The strength of the bullish sentiment seems well established.

ftse rallies to overbought territory

However, we can see that the RSI is currently in overbought territory at 81.09. The level in the RSI also tells us that the ongoing rally is strong. But we are also at levels that are becoming harder to sustain.

It wouldn’t be surprising to see a correction soon, the signal of that correction would be given by the RSI dropping below the 70 level. A correction would likely lead to the market reaching 8280, a level set by the Fibonacci Retracement tool.

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Gino Bruno D'Alessio
Gino D’Alessio is a professional Forex trader with 20+ years of experience in the financial markets as a broker-dealer. Having worked in New York and London, Gino is regularly featured on Seeking Alpha. He completed the CAIA program in 2015, which also gave great insight into global macro factors. His main focus is FX majors, indices and commodities.
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