Previewing Bank of England Decision Ahead

Feb 02 2017, 2:13 pm
Carney_BOE_Bank Of England

Quick Look At The Fed

The Federal Reserve decided to keep the current policy unchanged in its January meeting as widely expected. Many thought that this will be a non-event. However, we noticed a notable impact across all asset classes.

The main reason behind the major impact is that the FOMC members voted anonymously in favor to keep the current policy on hold, which eases the chances for the potential four rate hikes this year.

In return, the US Dollar declined below 99.50, while the US equities managed to close the day higher, after it traded lower before the decision. Meanwhile, the upcoming data remains the key, especially the upcoming Jobs Report on Friday.

Bank of England Decision Ahead

All Eyes turns to the Bank of England decision today, in addition to the inflation report, which both will be announced at the same time around 12:00 GMT+.

The Estimates points to no change, the Bank of England is expected to keep the rates at record low, while the Asset Purchases Facility may be kept at 435B pounds.

What matter’s the most in today’s decision is the MPC Meeting Minutes votes. The estimates points to no change. Economists are looking for an anonymous vote by all the nine members to keep the policy unchanged.

However, the recent economic releases from the UK showed that the economy is still healthy and solid. The GDP data stabilized for the past three quarters around 0.6%. Despite the fact that its still far away from the BOE target, but its above the markets estimates.

[caption id="attachment_27963" align="aligncenter" width="300"] UK GDP QoQ[/caption]

Moreover, The inflation data were crucial recently, the Core CPI YoY spiked to the highest level since August of 2014 at 1.60, which is 0.4% away from the Bank of England Target, which would put the Bank of England in a dilemma to keep the current purchases program.

[caption id="attachment_27964" align="aligncenter" width="300"] UK Core CPI YoY[/caption]

Despite that, traders need to be aware that Brexit impact is not there yet. The UK is still in the EU and we might not actually notice the Brexit impact for years. Therefore, Bank of England might need to clarify what they are planning to do if inflation continued to rise further.

GBP Outlook

[caption id="attachment_27965" align="aligncenter" width="300"] GBPUSD Daily Chart[/caption]

The British Pound continued to rise for the third week in a row, and the third day in a row this week as well, rising all the way back to 1.27, which represents a strong resistance on the short term. However, the daily chart is still showing a possibility of further gains ahead, especially after break above the former resistance area which stands at 1.2650.

Yet, a stabilization above that resistance is still needed to confirm the upcoming rally. As show on the chart, the next resistance area stands at 1.2750, which represents December’s high, which should be watched very carefully, as a break above that resistance would be considered as a bullish breakout, which would increase the possibilities to test 1.30 areas in the coming weeks.

On the downside view, any downside resistance is likely to be limited, as the pair is trading above a sharp up trend line, which should be watched carefully. As long as the pair continue to trade above the trend line, buyers are likely to appear. The outlook remains bullish as long as it stays above 1.2450’s.

Levels To Watch

Symbol S3 S2 S1 Pivot R1 R2 R3
GBPUSD 1.2563 1.2600 1.2626 1.2663 1.2689 1.2726 1.2752
GBPJPY 141.04 141.52 141.84 142.32 142.64 143.12 143.44
GBPAUD 1.6391 1.6434 1.6466 1.6509 1.6541 1.6584 1.6616
GBPCHF 1.2412 1.2448 1.2477 1.2513 1.2542 1.2578 1.2607
GBPNZD 1.7188 1.7239 1.7274 1.7325 1.7360 1.7411 1.7446
GBPCAD 1.6334 1.6375 1.6409 1.6450 1.6484 1.6525 1.6559

Nour Eldeen Al-Hammoury

Nour Eldeen Al-Hammoury has more than ten years of experience in focusing on foreign exchange and global economic developments, as well as central bank policies and intermarket analysis (global markets relationships). Nour Eldeen is a regular on many major TV networks (several times each) such as: BBC Radio, BBC World News, Al-Jazeera, Al-Hurra TV CNBC Europe, CNBC Asia, CNBC Arabia, Al Arabiya, Bloomberg, Russia Today, Dubai TV, Sama Dubai, Skynews Arabia, Qatar TV and Future TV News.