BoE Policy Split; GBP/USD Finds Support at 1.66

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BoE Policy Split; GBP/USD Finds Support at 1.66

The Bank of England’s (BoE) meeting minutes for its August 6-7 monetary policy meeting showed a split in the votes for interest rate policy. For most members “there remained insufficient evidence of inflationary pressures to justify an immediate increase in Bank Rate.” However for two members, Martin Weale and Ian McCafferty voted for a 25 basis point increase, taking the position that even after such a rate hike, monetary policy would still be “extremely supportive, and an early rise would facilitate the Committee’s aspiration that the rises in Bank Rate should be only gradual.” (from the official BoE Meeting Minutes).

GBP/USD started the week bearish, pulled down by soft inflation data – CPI inflation was at an annual rate of 1.6% in July. After stalling at 1.66, it seemed to have popped up after the release of the BoE minutes.

GBP/USD 4H Chart 8/20
gbpjpy 4h chart 8/20

(click to enlarge)

The bullish reaction to the BoE minutes is muted so far, and the bearish trend still looks strong. The next support levels are at:
S1: 1.6550
S2: 1.6465

The market looks poised to head to these levels unless today’s FOMC meeting minutes reveal a dovish tone. US growth has been impressive in Q2, and might still be decent in Q3 even if it levels off slightly. The focus might be on inflation and wage growth and the slack in the labor market.

When you look at the GBP/USD in the daily chart, you can see that the 8/19 bearish candle was an engulfing, bearish continuation signal as it crossed below the 200-day SMA. Only a break back above 1.6750 at this point should introduce a consolidation/bullish correction outlook. Otherwise, all signs on the daily chart point toward the 1.6550 and 1.6465 levels. The only thing might be the oversold condition seen in the daily RSI, but this is not significant when the bearish trend is persistent – and it has been persistent since retreating from the 1.7191 high. Still the oversold condition DOES warn us to respect those 2 support levels 1.6550 and 1.6465.

GBP/USD Daily Chart 8/20
gbpusd daily chart 8/20

(click to enlarge)

To contact the reporter of this story, email Fan Yang at fan@forexminute.com
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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.