The sterling will be under the microscope today! Thursday is here and all the traders await the Bank of England’s monetary policy meeting. The central bank had held its interest rates unchanged at 0.5% for seven a half years and its quantitative easing steady at £375B since July 2012. However, following the Britain’s decision to leave the European Union, the nine members of the BoE monetary policy committee voted unanimously in August to lower the main interest rate at the record low of 0.25% to bolster the economy from Brexit consequences and prevent it from a recession. The committee was also forced to announce further stimulus measures. The bond-buying program increased by £60 billion to £435 billion, the central bank offered 10 billion in new corporate bond purchases and £100 billion in Term Funding Scheme.
[B]Analysts foresee the economy to slow down in the coming quarters[/B] and this is what adds pressure on the next policy meetings. The central bank tries to avoid a possible recession using stimulus measures. Although, in my opinion, the measures already announced may be enough to prevent the economy from recession, averting BoE to announce more stimulus measure in the meeting today. As the measures are fresh, they will need some time to show their impact, thus I believe policymakers would prefer to wait a bit more to see whether economy performs in line with expectations before taking any decisions. On the other hand, one may say that the lower than expected inflation rate released on Tuesday may prompt policymakers to think that economy needs a further boost.
On Wednesday, the[B] U.K. employment report[/B]released revealed that Brexit effect was very little in this sector. The unemployment remained unchanged at 4.9% while the average earnings including the bonus for the three months to July rose 2.3% above market expectations of 2.1% but below the previous figure for the three months to June. The claimant count change increased by 2.4k in August from a decrease of 3.6k before. All this data and the prospect of the BoE monetary policy meeting today pushed the British pound higher against almost all the majors on Wednesday and early Thursday sessions. Prior the awaited BoE interest rate decision and the release of the important meeting minutes, the retail sales for August are coming out.
[B]
GBP/USD – Technical Outlook[/B]
The British pound plunged below yesterday’s first support level at 1.3165, however, during the NY session it gained momentum and extended its move above the suggested target of 1.3250, reaching 1.3275 at the end of the trading session. The [B]GBP/USD[/B] pair is trading -0.15% so far this week, following a negative weekly candle -0.20% the previous week. However, the pound maintains a positive figure so far in September +0.80%. From a technical point of the view, the outlook remains bullish over the short and the medium terms, as the 50-SMA on the daily chart is providing a strong support to the price action, near the 1.3150 area, while the technical indicators remain positive as they move north. In the same chart, the daily, momentum indicators head higher above their mid-lines, adding to the bullish picture of the pair.
In focus, the Bank of England policy meeting that might bring additional volatility over intraday basis on the markets. Moving to a lower timeframe, technical indicators retreated from bullish areas suggesting a pullback, however, I would expect this to be temporary. Therefore, the intraday traders should watch the 1.3220 – 1.3230 zone, which coincides with the 1-hour 50-SMA and the 4-hour 100-SMA.
If the bulls manage to maintain the price above the latter zone before and during the BoE meeting then we would expect some more aggressive extensions towards the long-term ascending trend line, near 1.3280. Above there, the 1.3300 barrier will be the next obstacle for the bulls, which also includes the 200-SMA on the 1-hour chart, a minor obstacle for now. On the other hand, we could see another push lower, towards 1.3200 and 1.3165, which are likely immediate barriers, before the pair moves to 1.3140, yesterday’s low.