GBP is offering an upside risk on the back of the Bank of England rate hike. The BoE host a super Thursday (Nov 02) when the bank released the policy settings and quarterly inflation report.
Most of the analysts expected a 25bp hike from BoE, focus shifts to tightening cycle.
At the September meeting, the policy statement revealed, “ “All MPC members continue to judge that, monetary policy could need to be tightened by a somewhat greater extent over the forecast period than current market expectations”.
The MPC members also judge that “some withdrawal of monetary stimulus is likely to be appropriate over the coming months in order to return inflation sustainably to target”.
At the October meeting, we focus on the “tightening cycle”. If the bank followed the Fed rate hike path cycle “gradual” the available headroom to GBP is limited in the medium term perspective.
At the September meeting, the BoE also said, “all members agreed that any prospective increases in Bank Rate would be expected to be at a gradual pace and to a limited extend”.
According to Barclays, “A single rate hike priced in for 2018 would be too little – the market currently prices in c.30bp within 2018”.
Also read: Global risk events preview
GBPJPY: Central banks policy meeting offers upside risk.
Near-term risk to GBP: The dollar index is higher against all major pairs in the recent weeks. We expect a decision (end of the trading week/over the weekend) from president trump regarding the next FOMC Chairman. FX participants are closing watching to the rumors. Post the announcement focus shifts to the 2018 rate hike expectations as 2017 December rate hike is fully priced in.
The weekly price action remains strong between 1.3340 and 1.3020/1.3000. Ahead of mega Thursday, we believe the trading range remains between 1.34-1.30 i.e the first week of October trading range. Technically speaking between 100EMA and 20MA (weekly).
Supports: 1.3060, 1.3020/1.3000 and 1.2900
Additional support finds at 1.2850 it’s 200DMA.
Resistances: 1.3160, 1.3230 and 1.3270/1.3300
Additional resistance seems at 13340 (Oct 13 high).
A weekly close below 1.3000 needed to retrace further to 1.2900 and 1.2850 (200DMA). Further dollar strength cast the near-term weakness. Medium term support finds at 1.2850 and 1.2770.
View: Neutral/cautiously bearish.
FX traders are watching next Mega Thursday, Nov 02. Market participants are expecting the first-rate hike more than a decade 0.25% to 0.5%. We still believe a rate hike path is the key, not just one.
We repeatedly forecast “The recent corrective rally likely to end between 50.0%-61.8% fib reactions”. The cross rejected at the 50.0% fib reaction and printed a lower high pattern. We still believe downside risk remains in the near term. We have an initial target at 0.8780/0.8750. A weekly close below 0.8700 needed to forecast 0.8470 and 0.8300 levels.
Resistance seems at 0.8900, 0.8980 and 0.9035.
It is important to always keep in mind the risks involved in trading with leveraged instruments.
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