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FX Week Ahead - Top 5 Events: September BOE Meeting & GBP/USD Rate Forecast

FX Week Ahead - Top 5 Events: September BOE Meeting & GBP/USD Rate Forecast

2019-09-16 20:40:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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BOE Meeting Preview:

  • The September BOE meeting results will be released on Thursday, September 19 at 11:00 GMT, but with the Brexit talks ongoing, rates should stay on hold.
  • Like for all GBP-crosses, the GBPUSD technical forecast can rapidly evolve depending upon the latest Brexit headlines.
  • Retail traders have remained net-long since May 6 when GBPUSD traded near 1.3096; price has moved 5.1% lower since then.

Join me on Mondays at 7:30 EDT/11:30 GMT for the FX Week Ahead webinar, where we discuss top event risk over the coming days and strategies for trading FX markets around the events listed below.

09/19 THURSDAY | 11:00 GMT | GBP Bank of England Rate Decision

There are two primary reasons why traders should keep expectations low for the September BOE meeting. The first reason is typical in nature, at least since the June 2016 Brexit: the BOE is doing everything it can to stay neutral to not appear political during the Brexit negotiations. The second reason is typical in nature, at least since the Global Financial Crisis in 2008: September policy meetings do not produce new growth, inflation, and unemployment forecasts, collectively known as the Quarterly Inflation Report (QIR).

Bank of England Interest Rate Expectations (September 16, 2019) (Table 1)

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Now, overnight index swaps are pricing in a 1% chance of a 25-bps rate cut at the September BOE meeting, or, a 99% chance of a hold. Traders have been of the mindset that there won’t be a change at the September BOE meeting for some time; six months ago, there was a 76% chance of a hold.

With the Brexit talks ongoing, the BOE isn’t expected to move anytime soon; the BOE’s main rate is favored to stay at 0.75% through at least June 2020. But the moment clarity over Brexit begins to take shape, it seems highly likely that rate odds will evolve rapidly; the period of high volatility for the British Pound isn’t going to dissipate anytime soon.

Pairs to Watch: EURGBP, GBPJPY, GBPUSD

GBPUSD Technical Analysis: Daily Rate Chart (September 2018 to September 2019) (Chart 1)

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In our last GBPUSD technical forecast update, it was noted that “a break above 1.2380/85 – a key band of support/resistance dating back to 2017, including the January 2019 Japanese Yen flash crash low and the July 2019 swing low – would suggest that the trend has indeed turned in a more reliable fashion.” By the end of Friday, September 13, GBPUSD closed through this level.

With GBPUSD rates still above their daily 8-, 13-, and 21-EMA envelope in bullish sequential order, Slow Stochastics holding overbought territory, and daily MACD continuing to rise through its signal line into bullish territory, it appears that the path of least resistance remains to the topside. However, like for all GBP-crosses, the GBPUSD technical forecast can rapidly evolve depending upon the latest Brexit headlines.

IG Client Sentiment Index: GBPUSD Rate Forecast (September 16, 2019) (Chart 2)

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GBPUSD: Retail trader data shows 61.6% of traders are net-long with the ratio of traders long to short at 1.61 to 1. In fact, traders have remained net-long since May 6 when GBPUSD traded near 1.3096; price has moved 5.1% lower since then. The number of traders net-long is 2.3% lower than yesterday and 10.8% lower from last week, while the number of traders net-short is 1.5% higher than yesterday and 7.1% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBPUSD prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse higher despite the fact traders remain net-long.

FX TRADING RESOURCES

Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.

--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher, email him at cvecchio@dailyfx.com

Follow him in the DailyFX Real Time News feed and Twitter at @CVecchioFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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