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Jignesh Davda

The weekly open has seen a fair amount of gaps as the markets have shifted to a risk-averse stance after Coronavirus fears intensified over the weekend. The dollar is little changed in early day trading while Sterling has caught a firm bid ahead of this week’s Bank of England meeting.

Earlier this month, several Bank of England members discussed their views on monetary policy and revealed how close the bank is to reducing the interest rate. One commonality among members was the need to see a further deterioration in economic data for further policy easing to materialize.

While data released in the early month was generally weak, the last few economic reports have been positive, tilting the risks to a near-term rate cut.

Services and manufacturing PMI’s released late last week both rebounded firmly after showing weakness in the prior two readings. The employment rate, also reported last week, rose to a record high. Annual wage growth slowed slightly to 3.4% although it held steady at 1.8% once adjusted for inflation.

The probabilities for a rate cut, as priced into the markets, hovered around 70% in the middle of the month. After last week’s data, the odds have declined to a roughly 50% chance of a decline in the interest rate at the meeting this week.

Technical Analysis

GBP/USD has recovered, with momentum, after finding buyers at 1.3050 support. The pair is holding firmly above the 100 moving average on a 4-hour chart and has printed a bullish candlestick pattern as a result of the early day rise.

GBPUSD 4-Hour Chart

The candlestick pattern signals more gains to come, although resistance is within proximity and the markets may not want to get ahead of themselves ahead of Thursday’s BoE meeting. For the session ahead, 1.3109 is seen as the first level of upside resistance. Buyers may look to defend the 100 MA on a 4-hour chart on dips, currently residing at 1.3068.

More meaningful price action might be seen after the bank meeting considering the probabilities suggest policymakers could go either way this week in the monetary policy decision.


Bottom Line

  • GBP/USD shows renewed upside momentum after finding buyers at 1.3050 support.
  • The odds of a rate cut have declined notably which has introduced some uncertainty as to how the BoE will act this week.
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