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Greater Dissent Inside the BoE to Fuel GBP/USD Relief Rally

Greater Dissent Inside the BoE to Fuel GBP/USD Relief Rally

2017-05-11 07:00:00
David Song, Strategist
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- Bank of England (BoE) to Retain Current Policy Following 8 to 1 Split in March.

- Will the Policy Statement Reveal a Growing Rift Within the BoE?

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

BoE Interest Rate Decision

Even though the Bank of England (BoE) appears to be in no rush to lift the benchmark interest rate off of the record-low, the fresh updates to the quarterly inflation report may fuel the relief rally in the British Pound should the central bank highlight an improved outlook for the U.K. economy.

Why Is This Event Important:

Moreover, the policy statement may reveal a growing rift within the Monetary Policy Committee (MPC) following the 8 to 1 split in March, and a greater dissent may heighten the appeal of Sterling as it boosts interest-rate expectations. In contrast, the majority may merely try to buy more time as ‘Brexit’ continues to cloud the outlook for growth & inflation, and more of the same from the BoE may undermine the recent recovery in the GBP/USD as market participants push back bets for a rate-hike.

Have a question about the currency markets? Join a Trading Q&A webinar and ask it live!

Impact that the BoE rate decision has had on GBP/USD during the previous meeting

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

MAR

2017

03/16/2017 12:00 GMT

0.25%

0.25%

+90

+92

March 2017 Bank of England (BoE) Interest Rate Decision

GBP/USD 15-Minute

GBP/USD Chart

The Bank of England (BoE) voted 8 to 1 to keep the benchmark interest rate at the record-low of 0.25%, with Kristin Forbes pushing for a 25bp rate-hike, but the majority appears to be in no rush to move away from the highly accommodative stance as the central bank reiterates ‘monetary policy can respond, in either direction.’ Despite the BoE’s wait-and-see approach, the British Pound jumped following the dissent, with GBP/USD climbing above the 1.2300 handle to end the day at 1.2357.

How To Trade This Event Risk(Video)

Bullish GBP Trade: BoE Boosts Economic Forecasts, Reveals Larger Dissent,

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

Bearish GBP Trade: More of the Same From Governor Mark Carney & Co.

  • Need a red, five-minute GBP/USD candle to favor a short Sterling position.
  • Carry out the same setup as the bullish Sterling trade, just in reverse.

Potential Price Targets For The Release

GBP/USD Daily

GBP/USD Chart

Chart - Created Using Trading View

  • The near-term outlook for GBP/USD remains constructive as the pair breaks out of the triangle/wedge formation, with price & the Relative Strength Index (RSI) largely preserving the bullish formations from earlier this year; next topside target comes in around 1.3090 (38.2% retracement) to 1.3120 (78.6% retracement).
  • However, a RSI divergence appears to be taking shape as the momentum indicator pulls back from overbought territory even as the exchange rate pushes to fresh 2017-highs in May, and the oscillator may signal a bearish trigger as it slowly grinds towards trendline support.
  • Interim Resistance: 1.3460 (50% retracement) to 1.3481 (July high)
  • Interim Support: 1.1905 (2016-low) and 1.2100 (61.8% expansion)

Make Sure to Check Out the DailyFX Guides for Additional Trading Ideas!

IG Sentiment

Retail trader data shows 40.9% of traders are net-long GBP/USD with the ratio of traders short to long at 1.45 to 1. In fact, traders have remained net-short since April 12 when GBP/USD traded near 1.23716; price has moved 4.6% higher since then. The number of traders net-long is 13.2% higher than yesterday and 1.5% lower from last week, while the number of traders net-short is 5.9% lower than yesterday and 4.0% lower from last week.For More Information on Retail Sentiment, Check Out the New Gauge Developed by DailyFX Based on Trader Positioning

For More Updates, Join DailyFX Currency Analyst David Song for LIVE Analysis!

--- Written by David Song, Currency Analyst

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

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

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