News Column

GBP/USD to Preserve Bullish Trend on Hawkish BoE Minutes

May 21, 2014

David Song

- Bank of England (BoE) to Reiterate Updated Growth & Inflation Forecast

- Is There a Growing Dissent in the Monetary Policy Committee (MPC)?



Trading the News: Bank of England Minutes



The Bank of England Minutes may generate a more meaningful advance in the GBP/USD should we see a growing number of central bank officials show a greater willingness to normalize monetary policy sooner rather than later.



What's Expected:

GBP/USD to Preserve Bullish Trend on Hawkish BoE MinutesGBP/USD BoE Minutes



Why Is This Event Important:



The policy statement may show a growing dissent within the BoE as the fundamental developments coming out of the U.K. raise the prospects for a stronger recovery, and the fresh batch of central bank rhetoric may pave the way for fresh highs in the GBP/USD should the committee adopt a more hawkish tone for monetary policy.



Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Consumer Price Index Core (YoY) (APR)

1.8%

2.0%

Manufacturing Production (MoM) (MAR)

0.3%

0.5%

Retail Sales inc. Auto (MoM) (MAR)

-0.4%

0.1%



Sticky price pressures paired with the ongoing pickup in private sector activity may put increased pressure on the BoE to raise the benchmark interest rate ahead of schedule, and the GBP/USD may continue to carve higher highs & higher lows in the second-half of the year as the central bank moves away from its easing cycle.



Risk: Bearish Argument/Scenario

Release

Expected

Actual

Jobless Claims Change (APR)

-30.0K

-25.1K

Mortgage Approvals (MAR)

72.0K

67.1K

Gross Domestic Product (QoQ) (1Q A)

0.9%

0.8%



However, the persistent slack in the real economy may keep the BoE on the sidelines as Governor Mark Carney retains a cautious outlook for the region, and the GBP/USD may face a larger correction in the days ahead should the policy statement drag on interest rate expectations.



Read More:

Price & Time: About to Throw in the Towel?

GBP/JPY Top Valid Below 171.25, Eyes 169.05; GBP/USD Struggles on CPI



How To Trade This Event Risk(Video)





Bullish GBP Trade: BoE Shows Greater Willingness to Normalize Policy

  • Need green, five-minute candle following a hawkish statement to favor a long British Pound trade
  • If reaction favors buying British Pound, long GBP/USD with two separate position
  • Set stop at the near-by swing low/reasonable distance from entry; need at least 1:1 risk-to-reward
  • Move stop to entry on remaining position once initial target is hit, set reasonable limit



    Bearish GBP Trade: MPC Retains Neutral Bias for Policy Outlook

  • Need red, five-minute candle to consider a short GBP/USD trade
  • Implement same setup as the bullish British Pound trade, just in the opposite direction



    Potential Price Targets For The Release



    GBP/USD Daily

    GBP/USD Daily Chart
  • Outlook Remains Bullish as Pair Carves Higher Low in May
  • Interim Resistance: 1.7000 Pivot to 1.7030 (100.0% expansion)
  • Interim Support: Interim Support: 1.6730 (61.8% expansion) to 1.6720 (50.0% retracement)



    Impact that the BoE Minutes has had on GBP during the last release



    Period

    Data Released

    Estimate

    Actual

    Pips Change

    (1 Hour post event )

    Pips Change

    (End of Day post event)

    APR 2014

    04/23/20148:30 GMT

    --

    --

    -11

    -38



    April 2014Bank of England Minutes

    GBP/USD



    The BoE voted unanimously to retain its current policy in April as the central bank sees a stronger recovery in 2014, but the British Pound failed to benefit from the meeting minutes as the MPC talked down the threat for inflation. In turn, the GBP/USD slipped back below the 1.6800 handle, with the pair trailing lower throughout the North American trade to end the day at 1.6779.


















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    Source: DailyFx


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