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GBP/USD to Target Fresh 2014 Highs on Upbeat Bank of England (BoE)

GBP/USD to Target Fresh 2014 Highs on Upbeat Bank of England (BoE)

2014-04-10 07:00:00
David Song, Gregory Marks,

- Bank of England (BoE) to Keep Rate at 0.50%, Asset-Purchase Facility at GBP 375B.

- Monetary Policy Committee (MPC) Meeting Minutes Due Out on April 23.

Trading the News: Bank of England (BoE) Interest Rate Decision

The Bank of England (BoE) interest rate decision may generate fresh highs in the GBP/USD should we see a growing number of central bank officials show a greater willingness to normalize monetary policy sooner rather than later.

GBP/USD Economic Events

Why Is This Event Important:

Indeed, BoE Governor Mark Carney argued the first rate hike may come before the general election in May 2015 amid the stronger recovery in the U.K., and a further shift in the policy outlook should continue to heighten the bullish sentiment surrounding the British Pound as the central bank moves away from its easing cycle.

Join DailyFX on Demand to Cover Current British Pound Trade Setups

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Manufacturing Production (MoM) (FEB)

0.3%

1.0%

Retail Sales ex Auto (MoM) (FEB)

0.3%

1.8%

Consumer Price Index Core (YoY) (FEB)

1.6%

1.7%

Sticky prices paired with the pickup in household & business activity may push the BoE to adopt a more hawkish tone for monetary policy, and the policy meeting may trigger a bullish reaction in the GBP/USD should the central bank lay out a more detailed exit strategy.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Mortgage Approvals (FEB)

75.3K

70.3K

Net Consumer Credit (FEB)

0.7B

0.6B

BBA Loans for Home Purchases (FEB)

50.0K

47.6K

However, the BoE may merely reiterate the policy statement from the March 6 meeting as the central bank continues to assess the margin of slack in the real economy, and the British Pound may face a near-term correction should the MPC meeting drag on interest rate expectations.

How To Trade This Event Risk(Video)

Bullish GBP Trade: BoE Sounds More Hawkish/Lays Out Detailed Exit Strategy

  • Need green, five-minute candle following the meeting to consider a long British Pound trade
  • If market reaction favors a bullish sterling trade, long GBP/USD with two separate position
  • Set stop at the near-by swing low/reasonable distance from entry; look for at least 1:1 risk-to-reward
  • Move stop to entry on remaining position once initial target is hit, set reasonable limit

Bearish GBP Trade: MPC Talks Down Interest Rate Expectations

  • Need red, five-minute candle to favor a short GBP/USD trade
  • Implement same setup as the bullish British Pound trade, just in reverse

Potential Price Targets For The Release

GBP/USD Daily Chart

GBP/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Bullish RSI Break Raises Risk for Higher High
  • Interim Resistance: 1.6850-60 (78.6% expansion)
  • Interim Support: 1.6400 (61.8% expansion) to 1.6430 (23.6% expansion)

Impact that the BoE Interest Rate Decision has had on GBP during the last meeting

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

MAR 2014

03/06/2014 12:00 GMT

0.50%

0.50%

-23

+12

Bank of England (BoE) Interest Rate Decision March 2014

GBP-USD-Target-Fresh-2014-Highs-Upbeat-Bank-of-England-BoE-0212_body_Picture_1.png, GBP/USD to Target Fresh 2014 Highs on Upbeat Bank of England (BoE)

The Bank of England interest rate decision came and went once again in its usual fashion. As has become the norm, a quick spike in GBP was followed by an equally fast pullback. As this meeting does not proceed the ECB, we may see greater follow through, especially in the EURGBP cross.

--- Written by David Song, Currency Analyst and Gregory Marks

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David's e-mail distribution list, please follow this link.

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