BoE Preview: Super Thursday Unlikely for Volatility

The Bank of England meetings in which the bank’s Quarterly Inflation Report is published along with the policy statement and the meeting’s minutes is often referred to as “Super Thursday.” But that title doesn’t apply much these days. As Brexit negotiations and stalemate dragged on, so too has the BoE’s inaction on interest rates. Policymakers at the BoE have been forced to sit on their hands since last August, despite UK inflation running well above the bank’s 2% target for the best part of the last two years. Only in the last three months has the headline consumer price inflation dipped back and remained below 2%, giving the BoE some breathing space. With the latest CPI inflation printing 1.9%, we can almost guarantee that interest rates and QE will be kept unchanged at 0.75% and £435 billion at today’s meeting, with the decision likely to be unanimous in a 9-0 vote. So, with that priced in, what could move the pound? I suppose the BoE’s updated inflation and growth forecasts in the Quarterly Inflation Report and Governor Mark Carney’s comments at the press conference has the potential to move the pound sharply. However, given the ongoing Brexit uncertainty, we doubt that the BoE will be too confident in predicting a sharp recovery, even if external growth has remained somewhat more robust than expected in places such as the US. So, the BoE’s forecasts may only get moderate upgrades or downgrades, and thus have minimal impact on the pound.

BoE trade ideas

  • We think that the pound will remain overall supported, although with the US dollar rebounding in reaction to the FOMC, the GBP/USD pair has the potential to retreat. So, the GBP/USD and maybe the GBP/CAD are the ones to watch if you are a GBP bear, given that these pairs have risen the least year-to-date.
  • For the GBP bulls, the best pairs to watch are probably the likes of the GBP/CHF and EUR/GBP, given that the CHF has been undermined because of the ongoing risk-on rally and the euro because of weakness in Eurozone data.    

EUR/GBP looking vulnerable

Since peaking in August 2017 at just above the 0.93 handle, the EUR/GBP has been trading inside a wide channel, although more recently it has been creating a series of lower lows and lowers highs as the euro weakened. After printing two weekly doji/inverted hammer candles in as many weeks around the 0.8650 resistance, the Chunnel has broken lower so far this week, with price falling back below the 2018 low of 0.8620. This will therefore be the key resistance level to watch going forward and so long as we remain below it, the path of least resistance will be to the downside. The next big objective for the bears is the liquidity below 0.8472, the year-to-date low that was hit in March.

Source: TradingView and FOREX.com

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