GBP/USD Threatens a Key Trendline After a Quiet BoE Statement

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GBP/USD Threatens a Key Trendline After a Quiet BoE Statement

Today the Bank of England (BoE) concluded its 2-day monetary policy meeting, and voted to keep its benchmark interest rate at the historic low of 0.50%, the level the Monetary Policy Committee (MPC) has been voting for since March 2009. Its bond purchase program also remained at £375 billion since July 2012. The MPC did not offer any additional information today, giving even more significance to the Inflation Report due Feb. 12. The minutes to today’s vote will be released Feb. 18. (BoE News Release).

Rate Hike Projection: Currently, projections for the next rate hike are for mid-2016 or earlier. There is a sense that the economy has gotten over a slump in the second half of 2014, and next week’s inflation report will help confirm or invalidate this sentiment that has been driving the pound higher.

The sterling has been resilient this week, and the BoE statement was benign enough to allow for further appreciation in the currency. Let’s take a look at the reaction in GBP/USD:

GBP/USD 1H Chart 2/5
gbpusd 2/5
(click to enlarge)

In the 1H chart, we can clearly see that price started the week constructing a price bottom, which was completed with a rally above 1.51. It slowed down a bit ahead of the BoE statement and is now continuing this week’s rally.

GBP/USD Daily Chart 2/5
gbpusd daily chart 2/5
(click to enlarge)

In the daily chart, we can see that as GBP/USD approaches 1.53, we should anticipate some resistance from a falling trendline coming down from July 2014’s high at 1.7190. Will the market press pause to sterling’s strength? If now, the pair has upside risk towarFd the 1.55-1.5540 area, which involves some previous support factors.

Failure to clear 1.53 with a retreat below 1.52 would be a sign that the market is still bearish, respecting the falling trendline. This scenario would put pressure back towards the 1.50 handle, and the 1.4950 low on the year.

NFP: A more immediate fundamental factor relative to next week’s BoE Inflation Report is tomorrow’s US NFP jobs report. The forecast calls for a reading around 231K, which is a slight decline from the 252K print in December. However, if the reading falls to around 200K or lower, the GBP/USD has a good chance to clear above 1.53 on USD-weakness. If the reading is 250K or higher, the 1.53 level has a better chance to hold. In fact, even if there is a break above 1.53, a very strong US jobs report should help the pair find resistance at or under 1.54, where the 50-day SMA resides at the moment.

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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.