The Great British Pound has an interesting day ahead, with the release of Bank of England MPC rate decision, inflation report and MPC minutes around midday BST (GMT+1). There is no expectation of a base rate change but analysts will be scanning the Committee minutes for clues on when a change might be expected.
Any potential direction setting by the BOE will be overshadowed by the impending Brexit referendum, which is exactly 6 weeks away on 23 June 2016.
These factors along with mediocre economic data paint a mixed fundamental picture for GBP until 23 June after which the tone will be heavily influenced by the Brexit referendum outcome.
Sentiment is somewhat bullish in the meantime, and may have a tail wind with COT data suggesting that bears are unwinding their net short GBP positions held for the second half of 2016.
The technical overview for GBP is modestly bullish:
Daily chart shows the completion of an inverse head and shoulders pattern. The pattern breaks down a little in the second shoulder but undoubtedly signals a pause or reversal of the bear trend of the second half of 2015. The pattern established a zone of support around 1.41 (See Chart A).
In addition price :
- has recently found respect for the daily 55;
- is at an area of previous resistance;
- is at a 50% retracement from the month-long bull trend;
- the daily stoch is oversold and showing signs of rising; and
- is touching the weekly pivot M2 which indicates a target of weekly M4.
M4 would take us back up to form a double top at 1.475: a scenario favoured by the 55EMA support at 50% retracement and M2 – M4 pivot (See Chart B).
If that double top occurs then we might be looking at a range with the 1.41 support as the lower end. Very positive BOE sentiment might facilitate a break out after we reach the previous high – but that has to be viewed as less likely while speculators eye-up the uncertain and potentially game-changing Brexit vote.
A bull needs to look for entries now although may wish to wait until after the fallout from today’s BOE release: a negative outlook from the BOE could kill the bullish mood.
Also worth noting the current relative strength of the USD: If GBP strength is confirmed today bulls might go hunting for weaker currencies to pair this off with. Anyone for sushi?