BOE's Mark Carney expects a smooth Brexit, but I don't

Daily Briefing, Feb 7 – “Super Thursday”, BOE Policy Decision in Focus

Posted Thursday, February 7, 2019 by
Arslan Butt • 2 min read

Good morning, traders.
During the Asian session, the financial market exhibited really thin trading volume and volatility as Chinese markets remain closed on Spring Festival and investors are staying out of the market ahead of the big news. It’s a Super Thursday, and the market is bracing to trade the Bank of England monetary policy today.

Watchlist – Key Economic Events Today

All eyes remain on Bank of England as it’s due to publish the monetary policy statement, the Monetary Policy Committee (MPC) meeting minutes, and the inflation report at 12:00 (GMT).

How it can impact Sterling?
Back in December 2018, the Bank of England kept the tone hawkish by saying that rates will be hiked as per economic events, triggering a neutral trend in the Sterling. But I’m not expecting any change in the interest rate (0.75%) today as there are some other factors that need our attention.

With less than two months to go before the UK formally leaves the European Union, the Bank of England is likely to struggle with setting monetary policy with no idea yet on whether or not there will be an orderly exit.

Bearing this in mind, the BOE will also update its inflation report and quarterly forecasts, which is likely to help us determine the upcoming trends in Sterling.

A post-meeting press conference is also scheduled at 12:30 (GMT). Let’s see if Mark Carney comes up with shifts in policy today.

MPC Official Bank Rate Votes – It will show the intentions of MPC (Monetary Policy Committee) officials. As of now, it’s forecast at 0-0-9, representing that none of the members are in favor of hiking the rate. The market may not be impacted by this until the voting decision changes.

BOE Inflation Report is significantly important as it highlights where the BOE sees inflation in the following years. It’s worth monitoring today to determine forecasts about BOE’s next rate hike.

GBP/USD Technical Outlook – the Most Highlighted Pair Today

During the past couple of weeks, the Sterling dropped from 1.3215 (high) to 1.2986 (low), which is almost 300 pips or even more. The bearish trend came in response to worse than expected economic figures of the UK and strengthening of the US dollar.

In fact, traders are pricing in dovish monetary policy as we all know BOE is least expected to make any changes ahead of Brexit.

Technically, the GBP/USD is oversold and the daily RSI is holding below 20 since the previous week. It badly needs to retrace back upward though it’s hard for traders to buy Sterling until they have some kind of solid fundamental support. The BOE can be a reason for a bullish reversal in the pound.

The MPC (monetary policy committee) officials can support the Pound by voting for the rate hike as 2-0-7 instead of the 0-0-9 forecast.

The cable has recently gained support above $1.2925 and has also formed a number of Doji and spinning top patterns right above this support area. It’s signaling that the bearish sentiment is getting weaker today.

BOE Hawkish Policy – The GBP/USD can bounce off above $1.2920 to target 23.6% Fibonacci retracement of 1.3000 today.

BOE Dovish Policy – A break below $1.2920 can lead it towards $1.2830 today.

Good luck for today and stay tuned to FX Leaders for more updates!

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