Currency Pair of the Week: GBP/USD – Action Forex
The Bank of England gathers on Thursday for its November Monetary Policy Decision meeting. Market participants may have been led to believe by some MPC members that the central bank may raise interest rates as early as this week! BOE Governor Baily has made several comments regarding the supply side of inflation (mainly energy prices), in which the central bank can’t control. If supply side inflation continues to rise, Bailey said that the BOE may have to act. In addition, BOE member Saunders said that “markets are right to price in an earlier interest-rate hikes than previously expected as inflation accelerates.” Note that the BOE’s bond buying program of GBP 895 billion isn’t set to expire until the end of this year. Therefore, the BOE may hike rates before QE expires.
Also, continue to watch ongoing Brexit issues. The latest spat is regarding fishing license applications between the UK and France. If the problem is not resolved by tomorrow, France has said they will prevent the UK from unloading fish. Both these issues have potential to move the Pound this week.
The US Federal Reserve also meets the week to discuss monetary policy. Expectations are high that the committee will announce the beginning of the end of its bond buying program. (If it does not, watch out for some fireworks). But what will be the pace of bond tapering over the next year? One suggestion was a reduction of $10 billion in treasuries and $5 billion in MBS per month. Powell stated at the September FOMC meeting that he expected the quantitative easing program to be finished by mid-2022. Also, how will the Fed identify inflation moving forward. Will it still consider it to be transitory? Markets will be paying close attention to the market statement and press conference for these answers.
Over the last year, GBP/USD traded from a low on September 25th of last year at 1.2687 to a high on February 24th at 1.4241. The pair pulled back and then retested those levels in late May/early June, failing to push higher. Since then, GBP/USD has pulled back to near the 50% retracement of September 25th, 2020 low to the February 23rd high, just below 1.3459. Also, since early July, price has been consolidating in a symmetrical triangle and posted a false breakdown in early October. GBP/USD is currently trading within the triangle, and slightly below the 50- and 200-day Moving Averages.
Source: Tradingview, Stone X
On a 240-minute timeframe, price has pulled back from the top, downward sloping trendline from the triangle (green) to the 38.2% Fibonacci retracement from the September 29th lows to the October 20th highs, near 1.3673. Support is at today’s lows near the bottom, upward sloping trendline of the triangle, near 1.3642. Just below there is the 50% retracement at 1.3622 and then the 61.8% Fibonacci retracement from the same time period, as well as horizontal support near 1.3570. Intra-day horizontal resistance from Friday is at 1.3710, as well as the 50-Day Moving Average. Above there is resistance at the recent highs at 1.3834 and the 200 Day Moving Average at 1.3847.
Source: Tradingview, Stone X
With both the FOMC and the BOE meetings this week there is potential for GBP/USD to break out of its recent range. And we didn’t even mention that the US releases Non-Farm Payrolls on Friday!! GBP/USD may consolidate on Monday and Tuesday this week, but there is a good great of potential for volatility towards the end of the week!