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UK’s FTSE 1000 has covered the small gap down on open, created earlier today, and is heading upwards to the 2016 peak at 6702.50. European equities mostly opened lower on Wednesday as markets were jittery ahead of the Bank of England’s policy meeting on Thursday while both crude price benchmarks are falling back after rocketing to one-week highs yesterday. On the supportive side, returning political stability in the UK, and mounting anticipation of a rate cut from the BOE has been a helping hand in boosting UK stocks higher.
Britain’s Conservative Party has confirmed that British Home Secretary Theresa May, who had supported the “Remain” camp during the British referendum, will succeed David Cameron as Prime Minister of Britain from Wednesday. This news helped sooth the market’s sentiment and ease domestic political uncertainty resulting from Mr. Cameron’s resignation.
May has made it clear that the Brexit referendum results were the final word, as far as Britain’s membership of the EU is concerned, but she seemed to be moving cautiously on the negotiations to quit the bloc, as she had sided with the “Remain” camp. Despite the lack of clues of when the negotiations would start and uncertainty about the new terms of UK’s relationship with the EU, the markets seem calmed by the impression that there is a plan and a roadmap to this process, which is becoming clearer with time.
The Bank of England is scheduled to decide whether to cut interest rates for the first time in more than 7 years, to curb potential economic damage from Brexit. The market is pricing in a more than 70% probability that the Bank of England (BOE) will reduce its benchmark interest rate to a record low from the current rate of 0.5%.
According to market sources, being faced with the possibility of a major slowdown in global activity due to Britain’s dissociation from the EU, governments and central banks worldwide are being expected to do their best to rebalance financial markets and expand their economic stimulus programs. An interest rate cut by the BOE in this policy meeting could help re-assure the markets, regarding the commitment of governments and central banks to contain the damage, following the post-referendum turmoil worldwide.
Optimism over the stimulus from the BOE, has sent Britain’s blue-chip FTSE 100 index 0.36% higher to 6672.30. The index has gained more than 16% since the post-Brexit low on June 24 of 5723.74.
Fig. FTSE D1 Technical Chart
FTSE has gained significantly from the support area of 5725.16 to as high as 6673.40, supported by the trend indicator below. RSI is heading up to the overbought territory, suggesting a continuous up-move for the price. However, the bull seems to be weakening as seen with the +DI (green line) beginning to point down towards –DI (red line). The index has also been boosted by the two moving averages below. It is expected to continue with its surge, and may test the resistance level at around 6707.12. After that, a retreat may occur.
Buy Digital Call Option from 6673.40 to 6707.12 valid until July 15, 2016