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Sterling tumbled in the wake of BOE policy

Market Analysis
2017-05-11_17-07-18

GBPUSD & GBPAUD ,H4

The BoE left policy settings unchanged as had been widely anticipated, leaving the repo rate at 0.25% and QE totals unaltered. The decision to leave the repo unchanged was by a 7-1 vote, with Forbes repeating her vote for a 25bp rate hike. The central bank released its quarterly Inflation Report, with forecasts little changed from the previous report in February. Its 2017 growth forecast was trimmed to 1.9% from 2.0%, though the central bank’s projections for 2018 and 2019 were both upwardly nudged by 0.1 of a percentage point. The BoE noted that recent sterling gains would lower import prices and dampen upward pressure on inflation, which in turn should ease the inflation-adjusted squeeze on household incomes. The Old Lady stressed that its forecasts assume a “smooth” Brexit process, which in the event could lead to a normalization in interest rates. The central bank said it had over-estimated growth prospects for the first half of this, and that a consumer expenditure slowdown was underway.

Sterling has taken a tumble in the wake of the BoE policy announcement and inflation report, which stressed that the relatively upbeat economic prognosis is dependent on the Brexit process going “smoothly”. This followed hot on the heels of disappointing UK industrial production data for March.

GBPAUD tipped  88 pips lower  at 1.7132, breaking the lower Bollinger Bands. However the price action in Sterling crosses in general backs up the recent abatement in upside momentum indicators following a two-month rally phase, portending a corrective phase. Hence a Long position was taken for both GBPAUD and GBPUSD pair. For the GBPAUD entry was taken at 1.7489.  In the 4 Hour Chart, RSI dropped sharply on the announcement of the policy at 37, however now is at 45 looking upwards. MACD remains positive, while in the daily charts Parabolic SAR remain positive as well. Target 1 was set at 1.7550, which is the confluence of 20-period EMA and ATR. Target 2 was set at 1.7600.  Support at  50 period EMA, at 1.7420, which seems to holds well in the 4 hour chart since April 18th.

Additionally another entry was taken, in Cable.

2017-05-11_17-11-34

Cable tipped some 50 pips lower in making a 1.2871 low in the wake of the BoE’s message. By considering that today’s performance is simply a correction of the upwards trend, an entry was taken at 1.2871. Target 1 is at the  key level at 1.2900,  while Target 2 is at 1.2950. Support is at the significant 200 Day EMA at 1.2800. RSI is sloping up while MACD remains positive.

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Andria Pichidi

Market Analyst

HotForex

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