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‘Buy Dips’ in GBP/USD as U.K. Mortgage Apps Raise Risk for Bubble

‘Buy Dips’ in GBP/USD as U.K. Mortgage Apps Raise Risk for Bubble

David Song, Gregory Marks,
GBP/USD dips BoE announces UK Mortgage.

The GBP/USD may continue to mark fresh highs over the next 24-hours of trading as a rebound in U.K. Mortgage Approvals raises the scope for a faster recovery in 2014.

Even though the Bank of England (BoE) removed the Funding for Lending Scheme (FLS) for U.K. households, a further pickup in demand for home loans may heighten the threat of an asset-bubble, and we may see Governor Mark Carney adopt a more hawkish tone for monetary policy in an effort to balance the risks surrounding the region. As a result, the Monetary Policy Committee (MPC) may take a more aggressive approach in preparing U.K. households for an imminent rise in the benchmark interest rate, and we may see a growing number of BoE officials show a greater willingness to normalize monetary policy sooner rather than later as private sector activity picks up.

At the same time, it seems as though the MPC will do little to halt the appreciation in the British Pound as it helps the central bank to achieve the 2% target for inflation, and the policy outlook continues to favor a bullish forecast for the GBP/USD as the Federal Reserve remains reluctant to move away from its zero-interest rate policy (ZIRP).

In turn, the GBP/USD may continue to target fresh 2014 highs as the pair retains the bullish trend from earlier this year, and it seems as though it will only be a matter of time before the pound-dollar probes the 1.7000 handle amid the deviation in the policy outlook.

U.K. Mortgage Approvals (March)

UK Mortgage Approvals for the month of March are expected to come in at 72.0K vs. 70.3K prior. In January we saw the reading come in at highs not seen since 2007, but we’ve since pulled back. It is key that we see the figure meet or beat in order for the GBPUSD pair to maintain its current price near 2009 highs on an intraday basis. From a technical standpoint, we saw GBPUSD break above the November 2009 highs ahead of and at the FOMC announcement, but we’ve not confirmed a daily close above that level just yet. In the context of Fibonacci channel resistance, it is important to note RSI trends on the daily chart. GBPUSD has attempted to break and hold 70 for months now and we’ve consistently seen failure. A strong RSI move above 70 has not been seen since the day of and after the September FOMC Rate Decision.

GBP/USD Daily Chart

GBP/USD Daily Chart

Source: FXCM Marketscope

GBP/USD Monthly Chart

GBP/USD Monthly Chart

Source: FXCM Marketscope

David Song, Currency Analyst and Gregory Marks, DailyFX Research Team

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