BOE = (B)reak (O)ut (E)vent For GBPUSD
With Australia’s highly-anticipated Q2 CPI report coming out broadly in-line with expectations at 0.7% q/q, traders honed in on the other major economic announcement of the last 24 hours, the minutes from the most recent Bank of England meeting. While the central bank voted unanimously to leave interest rates unchanged at 0.5%, there was a distinct hawkish shift within the bank’s monetary policy committee.
According to the minutes, “For a number of members, the balance of risks to medium-term inflation relative to the 2% target was becoming more skewed to the upside at the current level of Bank Rate. For these members, the uncertainty caused by recent developments in Greece was a very material factor in their decisions: absent that uncertainty, the decision between holding Bank Rate at its current level versus a small increase was becoming more finely balanced.” Needless to say, the situation in Greece is hardly as critical as when the bank met on July 8, arguably the day when Grexit fears peaked and many analysts are expecting a couple of voters to start agitating for a rate hike as soon as the BOE’s August meeting as a result.
Technical View: GBP/USD
GBP/USD traders quickly read the writing on the wall, driving GBP/USD higher by 70 pips, or about 0.5%, over the last 24 hours. Looking at the 4-hr. chart, the pair appears to be breaking out from the bullish flag pattern of the last week, hinting that the mid-July rally could resume. Meanwhile, the 4-hr RSI indicator is breaking out of its own bullish flag pattern, confirming the breakout in the exchange rate itself, and the MACD has turned higher, signaling a return to near-term bullish momentum.
From here, bulls may look to drive the pair up to the 61.8% Fibonacci retracement at 1.5700 next, with a break above that level potentially exposing the 78.6% retracement at 1.5800. Only a break below yesterday’s low around 1.5525 would shift the near-term bullish bias back to the downside.