Two trades to watch: GBP/USD, EUR/USD

GBP/USD looks to BoE rate decision after an upbeat Fed

After two days of gains GBP/USD is trading a few ticks lower ahead of the BoE rate announcement.

The BoE will be making its interest rate decision to a backdrop of decade high inflation, strong jobs report and rising concerns over Omicron, which saw the UK record 78,000 new COVID cases yesterday.

Concerns that the new strain of the virus could prompt more lockdowns, impacting the UK economy could see the BoE hold steady on interest rates.

However, the BoE could take a leaf out of the Fed’s book and adopt a more upbeat, hawkish approach.

Given that the broad expectations are that the BoE will push back until February, a rate hike today could see a big jump in the pound.

The Fed announced a faster pace to asset purchase paving the way for 3 interest hikes next year and 3 more in 2023. The hawkish Fed was already priced in and the US Dollar fell back post announcement.

Where next GBP/USD?

GBP/USD has extended its rise from 1.3160. The retaking of the 50sma, the falling trendline resistance and the bullish RSI are keeping the buyers optimistic of more upside.

Buyers will need to retake strong resistance at around the 1.3275-1.3282 zone the weekly high, which could prompt a move back over the falling trendline support turned resistance dating back to early August. Above here, the near term down trend is negated.

On the downside 1.3224, the 50 sma and the falling trendline support is a key level. A break below here could see the pair target 1.3170 the weekly low.

Will the ECB announce the end of PEPP?

The ECB is also due to make its monetary policy announcement too. No changes to the interest rate are expected.

The ECB could announce the end of the PEPP bond purchases will be in March in a step towards normalisation. However, the ECB could also raise APP bond purchases to soften the blow.

Updated macro projection are expected, with the ECB still expected to insist that inflation is temporary, although the move by the Fed could add pressure to the central bank.

Where next for EUR/USD?

After a false break out to the downside, from its symmetrical triangle on the 4 hour chart EUR/USD, the price has pushed higher retaking its 50 sma and testing the falling resistance upper band of the triangle.

A break out her could see EUR/USD rise to 1.1325 the weekly high, ahead of 1.3560 the December high and 1.3287 the late November high.

Failure to break above the falling trendline could see the price fall back to the rising trendline support at 1.1260. A fall below here could open the door to 1.1225 ahead of the year to date low of 1.1190.