GBP/USD Surges after the BoE Inflation Report

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GBP/USD Surges after the BoE Inflation Report

Resilience: GBP/USD has been putting in a price bottom since the end of January after it made a low on the year at 1.4950. The 4H chart shows the pair holding up against USD-strength even after a hawkish FOMC statement and a strong NFP report.

GBP/USD 4H Chart 2/12
Screenshot_021215_080003_AM
(click to enlarge)

Note that in the 4H chart, price has crossed over the 200-, 100-, and 50-period SMAs and then held above them treating the 200-period SMA as support. This is a slingshot signal for the bulls. The 4H RSI tagged 70 and held above 40, even 50, which shows development of bullish momentum.

Now, after the strong US jobs report on Friday, GBP/USD retreated from 1.5350 but held above 1.52. It then surged after the Bank of England’s inflation report.

BoE Inflation Report: The inflation report and press conference was highly anticipated. The previous inflation report sank the pound because it lowered growth and inflation projection. Today, the MPC actually improved its growth outlook, saying that lower oil prices should help the economy. However, it’s a double edged sword because inflation is now under 2% and his heading to 1%. Based just on low inflation, the MPC does have the door open for a rate cut, and is definitely not considering a rate hike for this year, at least for now.

Recording of the Press Conference

So, which force won? The improved growth outlooks vs. inflation concern? It appears that traders found more significance with the growth projection and bid the GBP/USD up above last week’s high of 1.5350.

GBP/USD Daily Chart 2/12
gbpusd daily chart 2/12
(click to enlarge)

Trendline Breakout: The daily chart shows cable pushing above a key falling trendline that has kept price bearish since July 2014. The price action in the past couple of weeks has become bullish at least for the short-term, with upside risk to the 1.5485-1.55 level (previous support), and the 1.56-1.5620 area (a support/resistance area w/ 100-Day SMA).

GBP/USD Outlook:
Let’s not get too excited about today’s BoE inflation report. It does say that we have already priced in GBP-weakness, but it does not really give us much to price in for the upside. So instead of seeing the inflation report as a reversal trigger, let’s look at it as more of a stabilizer for a medium-term consolidation, with short-term upside.

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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.