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GBP/USD To Take Cues From BOE Vote Count, Inflation Report

GBP/USD To Take Cues From BOE Vote Count, Inflation Report

Why Is This Event Important:

However, bright signs coming out of the U.K. economy may ultimately spark a dissent within the Monetary Policy Committee (MPC), and the pound-dollar may continue to retrace the sharp decline from the previous year should the BoE highlight a tightening race with the Federal Reserve to normalize monetary policy.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Retail Sales ex Auto Fuel (MoM) (JUN)

0.4%

-0.2%

Jobless Claims Changes (JUN)

-9.0K

7.0K

Consumer Price Index Core (YoY) (JUN)

0.9%

0.8%

Subdued price growth along with the recent slowdown in private consumption may encourage another unanimous vote within in the committee, and a further delay of the normalization cycle may produce near-term headwinds for the sterling as it drags on interest rate expectations.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Mortgage Approvals (JUN)

66.0K

66.6

Gross Domestic Product (QoQ) (2Q A)

0.7%

0.7%

CBI Business Optimism (JUL)

1

8

However, improved confidence paired with the narrowing slack within the real economy may prompt a split-vote within the MPC, and the fresh developments may pave the way for a higher-high in GBP/USD as the pair retains the upward trend carried over from April.

Bearish GBP Trade: BoE Votes Unanimously to Retain Current Policy

  • Need red, five-minute candle following the rate 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.

Bearish GBP Trade: MPC Highlights Growing Dissent/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 the opposite direction.

Potential Price Targets For The Release

GBP/USD Daily

GBP/USD Daily Chart

Chart – Created Using FXCM Marketscope 2.0

  • May see GBP/USD continue to retrace the decline from July 2014 should the BoE highlight a tightening rate with the Federal Reserve to remove the record-low interest rate.
  • DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-long GBP/USD since July 1, with the ratio currently sitting at +1.25 as 56% trades are long.
  • Interim Resistance: 1.5750 (23.6% retracement) to 1.5780 (38.2% retracement)
  • Interim Support: 1.5330 (78.6% retracement) to 1.5350 (50% retracement)

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

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

JUL 2015

07/09/2015 11:00 GMT

0.50%

0.50%

+17

-4

July 2015 Bank of England (BoE) Interest Rate Decision

GBP/USD Chart

As expected, the Bank of England (BoE) kept the benchmark interest rate unchanged for another month in July, with the central bank refraining from releasing a policy statement yet again. Even though BoE Governor Mark Carney continues to prepare U.K. households and businesses for higher borrowing-costs, the ongoing series of unanimous votes to retain the current policy may continue to dampen the appeal of the British Pound as market participants push back bets for a rate hike. The initial market reaction was limited, with GBP/USD holding a tight range, but the sterling struggled to holds it ground throughout the day as it closed at 1.5378.

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