Inconsistent market movements, as equities search for direction – Market Analysis – June 18

Inconsistent market movements, as equities search for direction – Market Analysis – June 18

QE program in the UK to add up to GBP100 billion

Stock markets remain without a clear direction as sentiment continues to be choppy.

China's announcement that the Beijing outbreak is under control has served only to provide a small bullish momentum that has faded throughout the session.

BOE and the Sterling Pound

The Bank of England has not provided any surprises to the market.

As expected, they left the reference rates unchanged and increased the amount of the QE asset purchase program by GBP100 billion. This amount was the minimum expected by analysts, so the decision was not aggressive enough to pressure the Pound Sterling downward at first.

The reaction of GBP/USD has been bullish, after a fall to 1.2470 in the moments before the decision was known. In any case, the statement of the meeting says that the level of uncertainty is still very high and that they are determined to reinforce these measures and increase the amount of QE if circumstances require.

GBP/USD has been losing territory after the market digested the content of the statement and understanding that monetary policy conditions remain expansive and open to new scenarios, among which rate cuts and more aggressive QE cannot be ruled out.

The pair has traded below the 1.2460 support point. A daily close at this level anticipates further falls to the next zone between 1.2250-1.2350.


The US Dollar

Part of the GBP/USD bearish movement is driven by a Dollar that continues to perform slightly stronger across the board.

There is no fundamental cause for this Dollar appreciation beyond the rebound in Treasury yields that are beginning to fall again. Nor is there any substantial change in the feeling of risk in the market that, in the cases in which they lean towards greater aversion, causes a rise in the Dollar as a safe-haven currency.

This strength in the Dollar has pushed the EUR/USD lower to its intermediate support levels between 1.1210-1-1220. Tomorrow's meeting of the European Commission has lost much of its interest following Germany's statement that no decision will be made at this meeting.

Specifically, they said the negotiations would start from next week and that it will be necessary to reach agreements between the countries before the summer break to launch the coronavirus rescue fund.

The future evolution of the Euro will largely depend on the outcome of these negotiations. The market will take any progress in this regard as a decisive factor for the Euro; on the contrary, if there were any obstacles to its implementation, they would put downward pressure on it.

In the market, there are currently contrary opinions in this regard; some major American investment bank considers the possibility that EUR/USD fell to the 1.08 zone before starting a long-term uptrend that would take it above 1.18. At the moment, we find support in the mentioned area of 1.1210-20 and below 1.1180.


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