£/$ GBPUSD: Trading of the Bank of England interest rate decision

Trading the News: Bank of England Interest Rate Decision

What’s Expected:

Time of release: 05/10/2012 11:00 GMT, 7:00 EDT

Primary Pair Impact: GBPUSD

Expected: 325B

Previous: 325B

DailyFX Forecast: 325B

Why Is This Event Important:

Although the Bank of England is widely expected to maintain its current policy stance in May, the bullish sentiment underlining the British Pound may gather pace as the central bank adopts a hawkish tone for monetary policy. As the BoE preserve its wait-and-see approach, we may see the Monetary Policy Committee refrain from releasing a policy statement, but the quarterly inflation on tap for May 16 may trigger fresh highs in the GBPUSD should the central bank raise its fundamental assessment for the U.K. Indeed, we should see the MPC move away from its easing cycle as BoE officials anticipate to see a faster recovery in the second-half of the year, and the board may start to lay out a tentative exit strategy as the stickiness in underlying price growth raises the risk for inflation.

Recent Economic Developments

Release	Expected	Actual
Retail Sales ex Auto Fuel (MoM) (MAR)	0.4%	1.5%
Consumer Price Index (YoY) (MAR)	3.4%	3.5%
Producer Price Index - Outputs (YoY) (MAR)	3.5%	3.6%

The Downside

Release	Expected	Actual
Halifx House Prices (3MoY) (APR)	0.4%	-0.5%
Gross Domestic Product (QoQ) (1Q A)	0.1%	-0.2%
Average Weekly Earnings (3MoY) (FEB)	1.2%	1.1%

As the outlook for growth and inflation picks up, we should see the BoE adopt a hawkish tone for monetary policy, and a fresh batch of central bank rhetoric may spark fresh highs in the GBPUSD as market participants start to look for a rate hike. However, the ongoing slack within the real economy paired with the slowdown in wage growth may encourage the BoE to strike a balanced tone for the region, and we may see the central bank carry its current policy stance into the second-half of the year as the recession in the euro-area – Britain’s largest trading partner – dampens the outlook for growth. In turn, a neutral policy statement may halt the bullish run in the GBPUSD, and the pair may ultimately face range-bounce prices as market participants maintain bets for more easing.

Potential Price Targets For The Rate Decision

A look at the encompassing structure sees the pound continuing to trade within the confines of a well-defined ascending channel formation dating back to the January low with the downside correction off the 2012 high at 1.63 finding ample support at the 61.8% Fibonacci extension taken from the January and March troughs at 1.6070. While our medium-term bias remains weighted to the topside, it’s important to note that broader risk trends may continue to drag on the pound, limiting advances in the near-term. We continue to favor long entries between the 1.60-handle (channel support) and the 1.6070-mark with a breach above the 78.6% extension at the 1.62-figure dispelling further downside pressure. Such a scenario eyes topside targets at the 1.63-handle and the 100% extension at 1.6360.

The scalp chart shows the GBPUSD holding within the confines of a descending channel formation dating back to the April 30th high with the pair testing channel support early in the US session. Soft interim support rests at 1.6130 backed by the 61.8% Fibonacci extension taken from the March 12th and April 5th troughs at 1.6088 and 1.6065. A break below the 50% extension at 1.6035 risks further losses for the pound with subsequent floors seen at the 1.60-figure and the 38.2% extension at 1.5980. A breach above channel resistance targets the 78.6% extension at 1.6165, the 1.62-figure, 1.6235 and the 100% extension at 1.6265, with a breach above the 2012 high at 1.63 exposing our objective at 1.6360. As the BoE maintains its current policy we may see a muted reaction to the release. However we will be closely eyeing these levels as we head into the quarterly inflation report due out on May 16th.

How To Trade This Event Risk

Trading the BoE rate decision may not be as clear cut as some of our previous trades as the BoE is widely expected to preserve its current policy stance, but a hawkish policy statement could set the stage for a long British Pound trade as it raises the scope for a rate hike. Therefore, if the central bank sees a greater risk for inflation and continues to favor a stronger recovery for the second-half of 2012, we will need a green, five-minute candle following the decision to generate a buy entry on two-lots of GBPUSD. Once these conditions are fulfilled, we will set the initial stop at the nearby swing low or a reasonable distance from the entry and this risk will establish our first target. The second objective will be based on discretion, and we will move the stop on the second lot to cost once the first trade hits its mark in order to preserve our profits.

On the other hand, we may see board member David Miles continue to push for more quantitative easing amid the ongoing slack within the real economy, and the majority may carry its neutral policy stance into the third-quarter in an effort to encourage a stronger recovery. As a result, if we see a growing rift within the MPC, with the board highlighting the downside risks surrounding the region, we will carry out the same strategy for a short pound-dollar trade as the short position laid out above, just in reverse.

Impact that the Bank of England Interest Rate Decision has had on GBP during the last meeting

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

April 2102 Bank of England Interest Rate Decision

Period	Data Released	Estimate	Actual	Pips Change (1 Hour post event )	Pips Change (End of Day post event)
APR 2012	04/05/2012 11:00 GMT	325B	325B	+26	+4

As expected, the Bank of England preserved its current policy in April, which produced a fairly muted reaction in the British Pound, but the meeting minutes sparked a sharp rally in the GBPUSD as the MPC voted 8-1 to keep the benchmark interest rate at 1.00% while holding the asset purchase target at GBP 325B. Indeed, board member Adam Posen scaled back his view for more QE as BoE officials expect to see a stronger recovery later this year, and it seems as though the central bank is looking to conclude its easing cycle this year as the committee no longer sees a risk of undershooting the 2% target for inflation.

$ GBPUSD: Trading the Bank of England Minutes

18 April 2012 03:00 GMT  Trading the News: Bank of England Minutes What’s Expected:
Time of release: 04/18/2012 8:30 GMT, 4:30 EDT
Primary Pair Impact: GBPUSD
Expected: --
Previous: --
DailyFX Forecast:--
Why Is This Event Important:

Although the Bank of England Minutes is expected to show board members David Miles and Adam Posen voting for another GBP 25B in quantitative easing, the policy statement could spark a bullish reaction in the British Pound should the central bank continue to soften its dovish tone for monetary policy. As BoE officials anticipate to see a more robust recovery later this year, the Monetary Policy Committee may continue to see a limited risk of undershooting the 2% target for inflation, and the central bank may move away from its easing cycle as the fundamental outlook for the U.K. picks up.

Recent Economic Developments 

The Upside

Release	Expected	Actual
Consumer Price Index (YoY) (MAR)	3.4%	3.5%
Producer Price Index – Output n.s.a. (YoY) (MAR)	3.5%	3.6%
Purchasing Manager Index Services (MAR)	53.4	55.3

The Downside

Release	Expected	Actual
Gross Domestic Product (QoQ) (4Q F)	-0.2%	-0.3%
Retail Sales ex Auto Fuel (MoM) (FEB)	-0.5%	-0.8%
Jobless Claims Change (FEB)	5.0K	7.2K

The Upside

Consumer Price Index (YoY) (MAR)

Producer Price Index – Output n.s.a. (YoY) (MAR)

Purchasing Manager Index Services (MAR)

The Downside

Gross Domestic Product (QoQ) (4Q F)

Retail Sales ex Auto Fuel (MoM) (FEB)

Sticky price pressures in the U.K. certainly limits the BoE’s scope to expand the Asset Purchase Facility, and a less dovish policy statement could ultimately bring about fresh yearly highs in the GBPUSD as the bullish formation continues to take shape. However, the BoE may keep the door open to expand monetary policy further amid the slowdown in private sector consumption paired with the ongoing weakness in the labor market, and the central bank may sound a bit more dovish as the weakening outlook for Europe – U.K.’s largest trading partner – dampens the scope for a stronger recovery. In turn, we may see the GBPUSD threaten support around 1.5800, and the pair may fail to maintain the upward trending channel from earlier this year as market participants anticipate to see the BoE carry out its easing cycle throughout 2012.

Potential Price Targets For The Rate Decision

 A look at the encompassing structure sees the sterling trading within the confines of an ascending channel formation dating back to the 2012-lows made in mid-January with the exchange rate holding above former trendline resistance dating back to August 19th. Daily resistance stands at the 50% Fibonacci extension taken from the January 13th and March 12th troughs at 1.5980 with critical resistance seen at the April 2nd high (1.6062) just shy of the 61.8% extension at 1.6070. We remains cautiously bullish here with a only a breach above the monthly high at 1.6062 offering conviction on our directional bias. Daily support now rests with the 38.2% extension at 1.5890 backed by the 200-day moving average at 1.5845. A break below the 23.6% extension negates our bias with such a scenario eyeing subsequent support target at the 100-day moving average at 1.5709 and the March lows at 1.5602. Note that daily RSI remains within the confines of a wedge formation with the pending break-out likely to offer further clarity as the pair remains in consolidation. 

 

 Our 30min scalp chart shows the pound holding above interim support at the 50% Fibonacci retracement taken from the April 2nd decline at 1.5930. Subsequent intra-day support levels are seen at the 38.2% retracement at the 1.59-figure, 1.5865 and the weekly low at 1.5820. A break below the 1.58-handle risks substantial losses for the pounds with a close below 1.5780 shifting our focus to bearish targets. Interim topside resistance stands at the 61.8% retracement at 1.5960 with a breach above 1.5980 targeting the 78.6% extension at the 1.60-figure and 1.6040. Should the print prompt a bullish response, look to target topside levels with a break above the monthly high at 1.6060 offering further conviction on sterling longs.

How To Trade This Event Risk

Trading the given event risk is certainly not as clear cut as some of our previous trades, but a less dovish statement could pave the way for a long British Pound trade as market participants curb speculation for more QE. Therefore, if the central bank takes note of the stickiness in price growth and raises its fundamental outlook for the region, we will need to see a green, five-minute candle following the statement to generate a buy entry on two-lots of GBPUSD. Once these conditions are fulfilled, we will set the initial stop at the nearby swing low or a reasonable distance from the entry, and this risk will establish our first target. The second objective will be based on discretion, and we will move the stop on the second lot to cost once the first trade reaches its mark in order to preserve our profits.

On the other hand, the ongoing slack within the real economy paired with the threat of a prolonged recession in the euro-area may lead the BoE to retain a cautious outlook for the region, and we may see the central bank keep the door open to expand policy further in an effort to promote a stronger recovery. As a result, if the MPC sounds more dovish this time around, we will implement the same setup for a short pound-dollar trade as the long position laid out above, just in the opposite direction.

Impact that the Bank of England Minutes has had on GBP during the last release

Period	Data Released	Estimate	Actual	Pips Change (1 Hour post event )	Pips Change (End of Day post event)
MAR 2012	03/21/2012 9:30 GMT	--	--	-20	-24

March 2012 Bank of England Minutes

Pips Change
(1 Hour post event )
Pips Change
(End of Day post event)
March 2012 Bank of England Minutes

 The Bank of England meeting minutes dragged on the British Pound as David Miles and Adam Posen pushed for another GBP 25B in quantitative easing, but it seems as though the Monetary Policy Committee is softening its dovish tone for monetary policy as central bank officials now see a limited risk of undershooting the 2% target for inflation. The sterling tumbled lower following the policy statement, with the GBPUSD quickly moving back below 1.5850, but we saw the pound-dollar consolidate during the North American trade to end the day at 1.5870.

Bank of England, the ECB Drop Easing Bias…for now

The Bank of England and the European Central Bank announced today that they would some changes to the existing monetary policy, which was in large part by the markets and in line with the consensus forecast. The BoE said that they would retain the reference rate to 0.5%, and that the programme for the purchase of the assets of the Bank would be maintained at the current level of £ 325 billion pounds.Prior to the announcement, the GBP/USD pair more rated 1.5808, but has lost some glitches after moving to 1.58. Santoshtiwari guru of the British pound closed a long position in the pair a short time, returning a profit of 10.25% for him and his more than 1300 copiers; a long position opened this month is closer to breaking even, currently by about 40 pips. A sustained demonstration could see this and its other open long, green. In the event that the BoE was surprised, however, this guru was ready with an order to buy down if the price should drop 1.5763.
Well diversified OpenBook guru sadiqashanaz97 was regularly scalping of long positions in the pair, content and the benefits of booking of 40, 20 or even 10 pips. While the time of the Guru is an average of four days, a long position, launched in August 2011, 1.6254, remains open. This trade would need a gathering of Sterling driving hard to make a profit. While this guru allocates only about 10% of its portfolio to the pair, she provided a yield of 1.9% in the six months. With 2 471 supporters and 383 copiers registered 457.7 profit % in 12 months, it is a near certainty that this guru will be just wait patiently for this rally to occur.
The ECB has even said that they would take their reference to 1% interest rates, given that the crisis in the euro area seems about to finally stabilize and the Bank inflation targets remain in the upper range. What investors look forward to know is whether the ECB had intended to launch another course. Mario Draghi, the head of the ECB, said that both of the previous global are undeniable but stressed again that the non-standard measures are temporary at best; that did not, however, firmly closed the door on the possibility of another course.
Entering was also higher than before the announcement, the 1.3258 and mostly optimistic feel about OpenBook. the pair slid to 1.3237 after the release of press, but always held in positive territory. OpenBook guru pawelskrzypek, who is very meticulous and methodical in making his decision, opened three short positions earlier today in the EUR/USD, which is trade exclusively with one of these short films already in the green. Guru Hschinner, who recorded a profit of 337% for the last six months, is also a bear for the pair, opening a court yesterday to add to the two, he opened in mid-January. Last week, his TP affected almost every day on a short position with more than 6% of average performance.
Measures of the ECB, the basic materials of the Euro continue to miss, and until the Greek situation is resolved satisfactorily, a downward trend is surely the conservative.
In the absence of any bias clear additional easing by each Central Bank will help finally to strengthen the currency of the country. When the question is disorder, of course, is already greater than 0.8386 EUR/GBP. Regardless of the orientation of the Central Bank, the underlying factors that supports a currency are likely to play a much more important role in the direction of the pair.