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GBP/USD 1.5000 Resistance Vulnerable to Unexpected BoE Dissent

GBP/USD 1.5000 Resistance Vulnerable to Unexpected BoE Dissent

2015-04-22 04:00:00
David Song, Shuyang Ren,
Share:

- Bank of England (BoE) Retains Current Policy Ahead of May 7 Election.

-Will There Be a Growing Dissent Within the Monetary Policy Committee (MPC)?

Trading the News: Bank of England Minutes

The Bank of England (BoE) Minutes may heighten the appeal of the British Pound and generate a larger rebound in GBP/USD should the fresh batch of central bank rhetoric boost interest rate expectations.

What’s Expected:

GBP/USD BoE Minutes

Click Here for the DailyFX Calendar

Why Is This Event Important:

However, we may get more of the same from Governor Mark Carney and Co. as the May 7 election clouds the fiscal outlook for the U.K., and we may continue to see a unanimous vote to retain a wait-and-see approach amid the ongoing slack in the real economy.

For more updates, sign up for David's e-mail distribution list.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Employment Change (3Mo3M) (FEB)

170K

248K

GfK Consumer Confidence (MAR)

2

4

Retail Sales inc. Auto (MoM) (FEB)

0.4%

0.7%

Improved confidence along with the ongoing expansion in private-sector consumption may encourage the BoE to adopt a more hawkish tone for monetary policy, and the meeting minutes may heighten the appeal of the sterling should we see a growing number of central bank officials show a greater willingness to normalize monetary policy sooner rather than later.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Average Weekly Earnings inc. Bonus (3MoY) (FEB)

1.8%

1.7%

Consumer Price Index Core (YoY) (MAR)

1.2%

1.0%

Trade Balance (FEB)

-1.500B

-2.859B

However, the BoE may further delay its normalization cycle amid easing price pressures paired with the widening trade deficit, and the British Pound remains at risk of facing additional headwinds over the near-term should the fresh batch of central bank rhetoric drag on interest rate expectations.

How To Trade This Event Risk(Video)

Bullish GBP Trade: BoE Shows Greater Willingness to Normalize Policy

  • Need green, five-minute candle following the print to consider a long GBP/USD trade
  • If market reaction favors buying sterling, 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 Looks to Further Delay U.K. Rate Hike

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

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Potential Price Targets For The Release

GBP/USD Daily Chart

GBP/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Lack of momentum to close above the 1.5000 handle may highlight a topping process in GBP/USD; break of near-term bullish RSI momentum to favor continuation of the long-term downward trend.
  • Seeing increased volatility in the DailyFX Speculative Sentiment Index (SSI) as retail crowd flips to net-long GBP/USD a day ahead of the BoE minutes, with the ratio currently holding at +1.11.
  • Interim Resistance: 1.5000 pivot to 1.5020 (50% expansion)
  • Interim Support: 1.4480 (100% expansion) to 1.4500 pivot

Read More:

Price & Time: Key Day For the Pound

USD/JPY Outlook Remains Mired by Bearish Momentum- 120.55 in Focus

Impact that the Bank of England Minutes has had on GBP during the last release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

MAR

2015

03/18/2015 9:30 GMT

--

--

-85

+127

March 2015 Bank of England Minutes

GBP/USD Chart

The Bank of England (BoE) Minutes continued to show a unanimous vote to retain the current policy, with the committee highlight the risk for a further appreciation in the sterling amid the divergence in the policy outlook. In turn, the BoE warned that the low-inflation environment is likely to persistent over the near-term, but went onto say that the next move is likely to be a rate hike as the central bank anticipates to achieve its 2% inflation target over the policy horizon. Increased concerns surrounding the sterling dragged on the exchange rate, with GBP/USD slipping the 1.4650 region, but the pound-dollar bounced back during the North America trade to end the day at 1.4887.

--- Written by David Song, Currency Analyst and Shuyang Ren

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

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