Ahead of the Bank of England’s Super Thursday, the pound has found some much needed support. It had fallen viciously for three weeks and the selling gathered pace ever since the Bank of England Governor Mark Carney strongly hinted at the prospects of no interest rate rises this month, owing to weakness in UK data. Well the BoE is meeting on (Super) Thursday when the bank will also publish its latest economic and inflation forecasts. If the BoE were to raise interest rates on Thursday, this would come as major surprise now. But with the pound correcting itself over the past three weeks, we don’t think that BoE’s likely inaction would necessarily lead to further declines for the pound, for this outcome is mostly priced in now. What the pound does next will surely depend on the BoE’s revised growth and inflation targets and hints about the timing of the next rate rise. So, we could actually see the pound go higher even if the BoE were to hold rates steady.
GBP/JPY defends key support – for now
In fact, the pound has bounced nicely against all her major rivals, most notably the yen, which has weakened after its recent outperformance. The GBP/JPY has therefore broken above Tuesday’s daily hammer candle at 148.05 after the recent sell-off paused around the pivotal 147.05 level. This can be considered a bullish development in that a prior high has been taken out and a former support respected. However, the Guppy has created a distinct lower high in April after forming a false break reversal pattern back in February. On top of this, price has fallen below both the 50 and 200 daily moving averages. So, there’s currently no clear directional bias on the GBP/JPY.
BUT, we may have created a higher low here if we assume that the previous break below the 147.05 support at the end of February was indeed a false break to trap the bears, which is a bullish reversal pattern. So, if the bulls are back in town then we should see the break of some resistance levels going forward, the first of which – around 149.10 – was being tested at the time of this writing. As well as old support, 149.10 is also where the 200-day moving average comes into play. Thus, a clean break above here would be considered a bullish development. In any case, the bulls will now need to defend short-term support at 148.05, otherwise the next run down to that pivotal 147.05 level could potentially lead to a breakdown this time.
Source: eSignal and FOREX.com.