GBP/USD Oversold Ahead of BoE- Will Governor Carney Talk Up Cable?
- Bank of England (BoE) Widely Anticipated to Retain Current Monetary Policy.
- Will the BoE Show Concerns About the Recent Depreciation in Sterling?
For more updates, sign up for David's e-mail distribution list.
Trading the News: Bank of England (BoE) Interest Rate Decision
Even though the Bank of England (BoE) interest rate decision is likely to reveal another 8-1 split within the central bank, the fresh comments may boost the appeal of the sterling and spur a near-term rebound in GBP/USD should the committee change its tune for monetary policy.
Click Here for the DailyFX Calendar
Why Is This Event Important:
The recent selloff in the British Pound exchange rate may spur a wider dissent within the Monetary Policy Committee (MPC) as it raise the risk for imported inflation but, more of the same from the BoE may drag on the exchange rate as Governor Mark Carney appears to be in no rush to normalize policy.
Expectations: Bearish Argument/Scenario
|Manufacturing Production (MoM) (NOV)||0.1%||-0.4%|
|Average Weekly Earnings ex. Bonus (3MoY) (OCT)||2.3%||2.0%|
|Consumer Price Index (YoY) (NOV)||0.1%||0.1%|
Slowing production paired subdued price/wage growth may push the BoE to endorse a wait-and-see approach throughout the first-half of 2016, and the sterling may face additional headwinds over the coming months should the central bank highlight a cautious outlook for the region.
Risk: Bullish Argument/Scenario
|NIESR GDP Estimate (DEC)||--||0.6%|
|Retail Sales ex Auto Fuel (MoM) (NOV)||0.5%||1.7%|
|Employment Change (3Mo3M) (OCT)||150K||207K|
Nevertheless, the BoE may sound less dovish this time around as the U.K. economy moves closer to full-employment, and the British Pound may face a near-term rebound over the coming days should the committee discuss normalizing monetary policy sooner rather than later.
Join DailyFX on Demand for Real-Time SSI Updates!
How To Trade This Event Risk(Video)
Bearish GBP Trade: More of the Same as BoE Endorses Wait-and-See Approach
- Need red, five-minute candle following the rate decision to consider a short GBP/USD trade.
- If market reaction favors selling Cable, short GBP/USD with two separate position.
- Set stop at the near-by swing high/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: Committee Scales Back Dovish Tone Amid Sterling Depreciation
- Need green, five-minute candle to favor a long GBP/USD trade.
- Implement same setup as the bearish sterling trade, just in the opposite direction.
Potential Price Targets For The Release
Chart - Created Using FXCM Marketscope 2.0
- The descending channel carried over from back in September along with the bearish formation in the Relative Strength Index (RSI) continue to cast a bearish outlook for GBP/USD, and the pair stands at risk of giving back the advance from the April low (1.4565) should we get more of the same from the BoE.
- DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-long GBP/USD since November 19, but the ratio continues to come off of recent extremes as it narrows to +1.26, with 56% of traders now long.
- Interim Resistance: 1.4860 (78.6% retracement) to 1.4910 (61.8% retracement)
- Interim Support: 1.4290 (78.6% retracement) to 1.4310 (61.8% expansion)
Impact that the BoE rate decision has had on GBP during the last meeting
|Period||Data Released||Estimate||Actual||Pips Change||Pips Change|
|DEC 2015||12/10/2015 11:00 GMT||0.50%||0.50%||-45||-19|
December 2015 Bank of England (BoE) Interest Rate Decision
The Bank of England (BoE) interest rate decision yielding another 8 to 1 split, within Ian McCafferty still standing as the lone dissenter as the committee waits for ‘sustained firming in domestic cost pressures’ to start normalizing monetary policy. Even though the Monetary Policy Committee (MPC) sees ‘robust growth’ in the U.K. economy, it seems as though Governor Mark Carney remains in raise the benchmark interest rate off of the record-low as price/wage growth remains largely subdued. The sterling struggled to hold its ground following the BoE rate decision, with GBP/USD slipping below the 1.5150 region but, the pair failed to retain the decline during the North American as it ended the day at 1.5158.
Avoid the pitfalls of trading by steering clear of classic mistakes. Review these principles in the "Traits of Successful Traders" series.
--- Written by David Song, Currency Analyst and Shuyang Ren
To contact David, e-mail firstname.lastname@example.org. Follow me on Twitter at @DavidJSong.
To be added to David's e-mail distribution list, please follow this link.
Trade Alongsidethe DailyFX Team on DailyFX on Demand
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.