GBP/USD Rallies As Market Undigested FOMC Statement, Eyes on MPC Vote
GBP/USD made a reverse turn yesterday and rallied 118-pips after clocking 1.3428 high as market was anticipating a hike by the Feds as a priced in news. On the other hand, FOMC statement by Yellen was seen neutral to dovish which gave the cable extra push. Today, the pair plunged to 1.3380 low as a correction and preparation for more upward action supported by upbeat retail sales by the UK at 1.1% while expectations were placed at 0.4%. As a result, GBP/USD extended the bulls and clocked 1.3466 high, currently trading 1.3442 intraday.
Fundamentally, UK inflation recorded a rise by 0.1% during November compared to October but the core CPI remained at 2.7% as expected. With inflation above the target, logically the BOE should take action by hiking rates or at least drop a hawkish tone in the statement signalling future monetary tightening. On the other hand, the dilemma lies in the domestic growth which is below potential which could be counterproductive as growth continues to show deceleration. Just a moment ago, UK retail sales result at 1.1% was seen unexpected which could turn MPC voting today to more hawkish.
GBP/USD bulls and bears stand on three major elements that needs to be considered to speculate how the cable should and will perform in the coming hours.
- BOE's Current rates stands at 0.50%, and it is widely expected to stay put with no game changer especially that last the last hike was during November, but still, BOE could take market off guard and increase current rates by 25 point basis, in this case, we could see the pound breaking previous tops and extending action beyond 1.35 level at to 1.3800. Although this scenario is not in discussion, but market should be opened to all scenarios taking into consideration this and last week strong UK data.
- Now comes BOE's statement or summary where we should focus on the following. The statement could drop a hawkish tone by mentioning that inflation is intolerant and growth is growing at high pace which forces BOE to take action in the near future, this is considered positive for the pound. A dovish scenario would include that recent data is strong and it was mentioned before by the BOE, still the central bank needs to look for additional inputs without seeing any reason for near-term action or the BOE pushes rates till end of 2018, this is dovish for the pound and in previous comments by Carney, the Gov. did postponed rate hikes till end of 2018 which caused GBP to collapse.
- Third, and most important, the MPC voting. There are two possible outcomes. First, in case voting was 0-0-9, this is considered negative for the pound as the members are not considering an near term action by the BOE. Second, in case we see a conflict between members where voting is 2-0-7 or 3-0-6, this is an indication that the members are turning more hawkish since expectations are at 0-0-9 and this will be reflected in the policy summary.
GBP/USD technical Overview
Closing price: 1.3416
Target price: 1.3240?
Resistance levels: 1.3450*, 1.3550+/-
Support levels: 1.3370, 1.3320-10, 1.3240*
Trend: Sdwys/Down
Trend reversal price: 1.3450*
Comment: The market remains in the short term back off of the past week and half. A complete retracement of yesterday's range with a drop under 1.3310 will release a selling wave to 13240*. A close over 1.3450* will highlight a reversing turn back to higher prices targeting a run to reach past the 1.3550 swing high.