GBP/USD to Threaten Bearish Momentum on Hawkish BoE- 1.6300 Up Next?

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- Bank of England (BoE) Widely Expected to Retain Current Monetary Policy.

- Will We Continue to See a 7-2 Split Within the Monetary Policy Committee (MPC)

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Trading the News: Bank of England (BoE) Interest Rate Decision

The Bank of England (BoE) interest rate decision may generate a further decline in the GBP/USD should the central bank refrain from releasing a policy statement and make further attempts to buy more time.

What’s Expected:

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Why Is This Event Important:

It seems as though we will continue to see a 7-2 split within the Monetary Policy Committee (MPC) as the majority remains reluctant to normalize monetary policy and the bearish sentiment surrounding the British Pound may gather pace over the remainder of the year unless we see a more hawkish twist to the forward-guidance for monetary policy.

Expectations: Bearish Argument/Scenario

Slowing outputs and easing home prices may push the majority to maintain the highly accommodative policy stance well into 2015 and the GBP/USD may continue to give back the advance from July 2013 should Governor Mark Carney talk down bets for higher borrowing costs.

Risk: Bullish Argument/Scenario

Nevertheless sticky inflation paired with expectations for a faster recovery may prompt the BoE to shift gears sooner rather than later and the GBP/USD may break out of the near-term bearish trend should the central bank adopt a more hawkish tone for monetary policy.

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How To Trade This Event Risk(Video)

Bearish GBP Trade: No Policy Statement & More of the Same from BoE

• Need red five-minute candle following the decision to consider a short GBP/USD trade
• If market reaction favors selling Cable short GBP/USD with two separate position
• Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward
• Move stop to entry on remaining position once initial target is hit set reasonable limit

Bullish GBP Trade: MPC Shows Greater Willingness to Normalize Policy

• Need green five-minute candle to favor a long GBP/USD trade
• Implement same setup as the bearish sterling trade just in opposite direction

Read More:

EUR/USD at Risk for Larger Recovery as ECB Buys Time SSI FlipsEURUSD October Opening Range Setup- 1.27 Key Resistance

Potential Price Targets For The Release

GBP/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

• Need a break of the bearish RSI momentum carried over from July to favor topside targets
• Interim Resistance: 1.6280 (38.2% retracement) to 1.6300 (50.0% retracement)
• Interim Support: 1.5890 (61.8% retracement) to 1.5900 (50.0% expansion)

Impact that the BoE rate decision has had on GBP during the last meeting

September 2014 Bank of England (BoE) Interest Rate Decision

As expected the Bank of England (BOE) maintained its highly accommodative policy stance in September with the central bank keeping the benchmark interest rate at 0.50% while retaining the asset purchase facility at 375B. Moreover the Monetary Policy Committee (MPC) once again refrained from releasing a policy statement and provided little evidence for a material shift in the policy outlook. Despite the muted market reaction the GBP/USD lost ground during the North American trade with the pair closing the day at 1.6309.

--- Written by David Song Currency Analyst and Shuyang Ren

To contact David e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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