GBP/USD Signals Bullish Continuation after BoE Caps Mortgages

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GBP/USD Signals Bullish Continuation after BoE Caps Mortgages

Mark Carney
(BoE governor, Market Carney)
Today, Mark Carney delivered the Bank of England’s semi-annual Financial Stability Report. The BoE governor addressed the concerns on overheated home prices, which soared 9.9% in April. The bank introduced measures to cool the housing market, and to prevent “build up of risky, high value loan in incomes mortgages”.
– Only 15% of new mortgages can be 4.5x the borrower’s income.
– Banks will stress test borrowers on whether they can pay back on 3% interest rate
– Loans above 4.5x income will not be available under “Help to Buy”
– Rules to go into effect Oct. 1
Here’s the official Financial Stability Report (pdf)

The market welcomed this news as London stocks rallied. The British Pound also got a boost. The GBP/USD has been consolidating this week, falling from last week’s high of 1.7062 to 1.6948. The 1H chart shows that today’s BoE announcement pushed the GBP/USD above this week’s falling consolidation trendline. Price pushed back above the 50-, 100-, and 200- hour simple moving averages. The 1H RSI pushed back above 70. These clues signal a bullish continuation and the pair is poised to challenge the 1.7062 high, threatening to push through towards the 1.71 handle if it breaks.

In the near-term, we can expect some brief pullback as we get started with the 6/26 US session and as the 1H RSI is overbought. But if price falls back to 1.70 and the RSI back near 40, look out for traders to buy on a dip.

gbpusd 1h chart, 6/26
(gbpusd 1h chart, 6/26)

A break below 1.6970 would invalidate the bullish continuation outlook. It would reflect a false bullish breakout and suggest a bearish correction with last week’s low at 1.6920 in sight in the near-term.

To contact the reporter of this story, email Fan Yang at fan@forexminute.com
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