We expect the MPC to remain hawkish bias and also assume that the pound is unlikely to benefit from BOE’s policy review in near-term perspective.

“No-deal” Brexit is the key driver for GBP from here on.

The Bank of England meeting this week unlikely to bring any news to the pound. Danske Bank said, “The bank is firmly on hold despite its tightening bias and it is one of the small meetings without an updated inflation report or a press conference.”

 Data review:

In terms of last week’s macro data releases, UK GDP contracted in April led by the production sector, according to the ONS data. Besides average weekly earnings were estimated to have an increase by 3.1%.

Monthly UK GDP growth was negative 0.4% in April 2019

From February to April 2019, the UK unemployment rate was estimated at 3.8%; it has not been lower since October to December 1974. Including bonuses, average weekly earnings for employees in Great Britain were estimated to have increased by 3.1%.

Data preview:

In UK, we will get CPI (Wed), Retail sales (Thu) and BOE policy meeting (Thu).

We expect the MPC to remain hawkish bias, but the pound is unlikely to benefit from the BOE’s meeting.

Morgan Stanley said, “With weak growth and inflation back below target, the MPC should stay on hold – but retain its hawkish bias, given strong pay growth. We expect a mid-2020 hike, once Brexit is resolved – but a cut in a no-deal Brexit.

Technical view

It has been a one side way for the euro cross as EURGBP which had jumped to a four-month high of 0.8950 on Monday. The euro cross is extending their six-week running streak and settle above 20MA.

As the daily RSI remains solid and as the weekly RSI and stochastics has picked up markedly, the risks of a new decline to supports located at 0.8870 and 0.8820 have eased dramatically in the next 2-3 days.

We favor new rebounds to resistances at 0.8970 and 0.9000 ahead of 0.9030. A break of these last barriers would give an impulsive move higher, paving the way for a more pronounced rally to the resistance at 0.9100.

It is important to always keep in mind the risks involved in trading with leveraged instruments.

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