Today we received the Bank of England monetary policy statement. The forward guidance had given the markets a reason to believe that there would be a 15 basis points rise in the bank rate and the pound had been priced into that sentiment.
Unfortunately for the pound traders, the BoE kept the rate unchanged, so we are now seeing a re-pricing in the pound lower. The Bank of England like the Federal Reserve last night have pivoted away from the immediate worry of inflation and are now talking about jobs. The Monetary Policy Committee also saw a shift in the voting, with only 2 of the members voting for a hike against the expected 3 votes. This signals that there is a growing gap in the chances of a rate hike this year.
With the bank rate remaining at 0.10% and the vote split 7-2 in favour of keeping rates unchanged the pound fell against the US dollar and 1.3500 looks like a logical target. The pound is now weaker against all the major currency pairs showing how disappointing a decision this has been.
On a daily timeframe, there is also a distinct possibility that the GBPUSD travels all the way to the lower bound of the descending trend channel to around 1.3300 before going back up to test the current support line of 1.3500 in the future.
Prior to today’s rate decision, the EURGBP traders on the ActivTrader platform were very bullish on the EURGBP currency pair. This figure has now dropped a few per cent from 75% bullish to 68% signalling some traders have taken profits or maybe using the move to get out of a bad trade.
The most obvious trade is to now wait for a breakout and retest of the 0.8500 level on EURGBP, ready for a long continuation to the recent swing highs of 0.8650 and possibly beyond.
The daily EURGBP chart had been signalling the possibility of a rise in the process as there has been a positive divergence between the daily MACD and the lower lows in price action. Should the EURGBP trade higher on a weakening pound, the daily 200 ema on EURGBP would be a great target as would the double top swing highs from July and September 2021.
If the ECB were to become more Hawkish at their important December meeting, this could then keep the momentum in EURGBP going higher as traders target the resistance level of 0.8870 which broke at the beginning of the year.