BoE kept it’s interest rate stable at +0.50% as was widely expected by the market. The minutes had a hawkish tone. Specifically they projected a need for a tightening to occur “somewhat earlier and by a somewhat greater extent” as until now anticipated. The quarterly inflation report projects inflation to drop to +2.28% in one year time from current +3.0% and GDP to grow by +1.8% for 2018 instead of +1.6% which was the previous forecast. BoE Governor, Mark Carney justified the tone of the minutes as global economic growth is stronger and at the same time mentioned that future interest rate hikes will be gradual. Analysts predict that the next rate hike may come as early as May 2018. Overall GBP has strengthened and there seems to be a positive sentiment for it.
Cable rose sharply yesterday upon BoE’s decision announcement and tested the 1.4040 resistance level, only to surrender most of its gains later on. We see the case for cable to continue to trade in a bullish mood for the short term, however contingent to today’s UK financial data release. Should the pair find buying orders, we could see it breaking the 1.4040 resistance line and aim for the 1.4168 resistance level. Should the pair come under selling interest, we could see the pair breaking the 1.3875 support level and aim for the 1.3749 support zone.
There seems to be another US Government shutdown, at least for a few hours as Senate has failed to reach a compromise to approve a temporary funding bill. Republican Senator Rand Paul has delayed a Senate vote on a bipartisan budget agreement for deficit reasons. White House has already instructed government agencies to prepare for a shutdown. The shutdown may prove to be temporary though as the Senate will come to a vote before the start of the US working day. US Dollar, could weaken somewhat from the developments, especially should the shutdown be realized and prolonged.
EUR/USD traded in a sideways manner yesterday, slightly above the 1.2230 support zone. We see the case for the pair to continue to trade in sideways manner with a bearish tone. The argument is based on the downward trend line which begins on Friday last week as well as the weak RSI. It should also be Cable dropped yesterday and tested the 1.3875 support level. Should the bears be in the driver’s seat we could see the pair head south, breaking the 1.2230 support line and aim for the 1.2100 support barrier. On the other hand should the bulls take the reins, we could see the pair breaking the 1.2355 resistance level and aim for the 1.2455 resistance hurdle.
BoE is widely expected to remain on hold, keeping interest rates at +0.50%. Market has priced in the scenario with a probability of 98.58%. The bank may want to retain flexibility ahead of the Brexit negotiations uncertainty, regarding the future rate hike path and hence avoid committing to any further rate hikes. We also see the case for forecasts of stronger growth and maybe lower inflation rates with a horizon of two years. We expect the overall effect of the voting, inflation report and inflation letter to be supportive for the GBP.
Cable dropped yesterday and tested the 1.3875 support level. We could see the pair rising today, as mentioned in the fundamentals before. Should the bulls take the reins we could see the pair breaking the 1.4040 resistance line and aim for the 1.4168 resistance level. On the other hand, should the bears take the driver’s seat, we could see the pair breaking the 1.3875 support line and even the 1.3749 support zone.