 Hey everyone, this is Mike Kramer of ModCapital with the check-in ahead of the BOE rate hike decision Which will take place on August 3rd today is August 2nd, and it's around 7 a.m. New York time So expectations are for the Bank of England to raise rates by 25 basis points to five and a quarter percent There are odds here of potentially 50 basis points However, these odds have been diminishing over time And so you're seeing that it's more likely to be a 25 basis point rate hike decision at one point It was seen that they were going to raise by about 50 basis points at this meeting But those odds have changed pretty dramatically over the last couple of weeks Additionally, it's worth pointing out that the odds for the interminable rate are also coming down at one point markets We're expecting a terminal peak rate of about six and a half percent and that's fallen to around five point seven five percent And interestingly enough when we take a look at the British two-year You'll see that it looks very similar in terms of shape and and the way that the the market is trading the two-year with the Expectations for rate hikes from the BOE. So if for some reason this announcement comes out being, you know, the 25 That's expected but the forecast Is for fewer rate hikes and with the market is pricing in you're going to probably see the two-year two-year guilt Trade lower here. And in fact when we look at the chart of the two-year guilt You can see that it almost resembles that of a bear flag And this would be suggestive that perhaps the BOE is going to Only not is not going to be as hawkish as previously thought and you could see the two-year perhaps begin to fade lower And perhaps trade back down to this 475 region Where it's likely to find some support before Potentially making a move to go even lower than that but again a lot of that's going to be determined on the type of language And your belly uses tomorrow. We certainly saw, you know a more When it comes from the when it comes from the perspective of central banks We certainly saw a more of a data-dependent approach out of the Fed That's been the case now for a couple of meetings ECB sort of backed off its aggressive hawkishness And has more of a you know not in the forward guidance business as Lagarde put it and is also more in the data-dependent and We had Bank of Japan which came out last week as well, which raised the trading ban on the 10-year JGB and It seems likely that you're going to start seeing all these central banks move into this data-dependent mode I think it's probably because they don't want to create any more excess volatility within the within the currency markets Given the surprise announcement by the BOJ last week So it wouldn't be surprising to me just to see a BOE That's more in line with that of the ECB in the Fed and less hawkish than what had been previously expected And that could be one reason why you're seeing This setup in the two-year guilt which looks pretty bearish in terms of rates going down now obviously if you were to get a move above this high of 505 it could know Perhaps push it towards the up right into this channel back towards five and a quarter Which would also be a resistance level here something watch so you're going to want to pay very close attention to the type of language if the language Shifts more towards out of the Fed in the ECB. I think it's more likely than not You're going to see the the two-year move down to four and a quarter And what that probably means for the 10-year is that you're also going to see the 10-year begin to Maybe move down towards four and a quarter again. You can see the big rising wedge pattern in the in the British 10-year and You can also see that there's a very similar sort of bear flag pattern present in the in the British 10 as well Which also would suggest maybe you see a drop in the 10-year back to this 410 region now Of course if you get a more dubbish Approach or you know statement out of the Bank of England something more in line with that of the Fed and the ECB like We spoke about you could see the you know the British the British pound begin to depreciate Quite notably here. It did ultimately get up to around 132 ish or so so didn't quite get to that 132 and a half to 133 section resistance level we have may have mentioned but we did get pretty close and This almost looks like a pattern of a rising wedge with a throw over We're now coming back into the rising wedge component and you can see the big Levels of support right here With this trend line and then of course you can see the big levels of support with this trend line again If you were to get a less hawkish BOE something more in line with that of the Fed and the ECB I think it's more likely than not you're gonna see the British pound break support and begin to weaken again back towards 126 and ultimately towards 124 And again, you can also see here That the upward momentum that had been witnessed on the pound since really the the fall Has we it's beginning to show signs of weakening and momentum being lost So again, it looks like there may be a point in time here where you're gonna see the odds of the strength Going back to the dollar not towards the British pound So when you look at the foot so you can see there's a big downtrend in place here And here's a secondary downtrend Here's our support level at 70 to 50 that held we've we've seen a very nice retracement This is if we go back to this point in time here and we look this has just been nothing more than a 61.8 percent retracement of this entire decline at this point So tough to say that this is the start of a new leg higher for the the footsie at this point in fact this looks more More like a retracement more like a test of this downtrend That's been in place here at around 77 40 or so Again, you can see we broke another downtrend here It's not unusual to see the market once it breaks a downtrend come back and retest the downtrend So would it be surprising to see the footsie drop back to around 74 60? I don't think that would be surprising at all. And in fact, I Happen to think that's probably what the most likely outcome is Rather than trying to test the 77 30 region only because you know, you're seeing weakness develop in other markets Asian markets have been hammered the last night you see the the downgrade and in the fit trading of the US debt, which I don't think is a terribly important decision In fact when you look at the dollar index the dollar index is trading higher today, which is absolutely The opposite of what I would have expected to see given the downgrade Which tells us that the markets are digesting this pretty well the US 10 years is hardly moved today So again, this is suggestive of the market really looking at this fish downgrade isn't a non-event at least from the point of view of What bonds are doing currently and what the dollar index is doing currently? So if it is the case that you're just seeing this shift in momentum in equity markets globally Then this is an indicative of probably a footsie that's going to be trading lower in the near term than higher and again Likely take some sort of really strong sound of confidence about the health of the economy from the BOE tomorrow To get the footsie trading up to the 77 40 region and potentially, you know breaking out and pushing up to 7800 and then 7900 it's more likely than not that I think you're going to see a retest of the 74 65 region or so on the footsie By the time things are all set and done so again There's a lot of important levels that are coming up right now British pound looks like it may be trading lower It looks like you may see rates begin to move lower And I think that's indicative of an equity market that's going to be looking to move lower just because I think You're seeing this change in the approach in terms of monetary policy out of the two major central banks That have already gone FOMC and the ECB to say you saw an unexpected shift out of the BOJ Which was leaked just a day before the announcement came to kind of you know get the markets prepared for that shift Which tells you that the central banks don't want to create any necessary Volatility in the market, which is why you're probably also going to see a BOE That's more similar than not to that of the the Fed and the ECB at least for this meeting And then what happens next meeting will be dependent upon the data that we see in the weeks to come Anyway, hope you have a great day and I'll see you soon. Bye