GBP/USD: Modestly Lower, Awaits Bank of England Decision
London (May 9) GBP/USD is modestly lower in today’s trading, holding near 1.2924, a loss of 0.13% from Tuesday’s North American close. Today’s minor setback follows the formation of a dark cloud cover, a bearish candlestick formation, on the daily chart as a result of Monday’s pullback.
The pair came under pressure in the vicinity of the 1.3000 level, which likely has psychological resistance value. In addition, GBP/USD is overbought on a daily basis according to the Stochastic, a price momentum indicator.
Thus, further consolidation could play out over the near-term, ahead of the Bank of England (BoE) rate decision, which is due Thursday at 07:00 ET. The BoE Monetary Policy Committee will announce its latest decision on interest rates as well as bond purchases. Bank Governor Carney is also scheduled to hold a press conference. An increase in interest rates appears unlikely given that the UK will be in the middle of an election campaign ahead of the June 8th election. The Monetary Policy Committee tends to be reluctant to adjust monetary policy during an election campaign unless the need for adjustment is overtly clear. However, on Thursday, there may be hints regarding a tighter policy later in 2017.
There are no economic reports due out of the UK until Wednesday at 19:01 ET, when the RICS house price balance for April will be released. This is a medium impact report.
Ahead of the BoE decision on Thursday, UK construction output, industrial production, manufacturing production and the trade balance will be released at 04:30 ET. Given the rate decision and the full economic calendar, trading could remain subdued heading into Thursday, with volatility then picking up substantially.
On the downside, first support is at the former rally high established April 18th at 1.2903. Second support is at the May 4th low at 1.2831 level, followed by the April 21st low at 1.2755.
At present, the broader bias for GBP/USD remains to the upside. Thus, the current dip is expected to offer a buying opportunity once signs of stabilization begin to emerge.
1.3000 was expected to have resistance value, particularly given the overbought condition of the pair resulting from the move to this level. However, the broader target for GBP/USD is above 1.3300, which was derived from the April 18th breakout from the symmetrical triangle basing pattern that dates back to early December 2016 on the daily chart, as shown below.
The next level of resistance above the 1.2988-1.3000 zone is at 1.3121, which represents the high established on September 22nd.
In the US, there are no high impact reports on the economic calendar today. However, at 10:00 ET, JOLTS job openings and wholesale inventories will be released. Both tend to be low impact. The next high impact report out of the US is due Thursday, when PPI for April will be released at 08:30 ET. Friday’s US calendar is busy, with the release of CPI and retail sales at 08:30 ET.
Source: EconomicCalendar
