British Pound on Thursday 20 Oct: Outlook for GBP Remains Supportive, MPC is Today's Main Risk Factor
The British pound sterling (Currency:GBP) has recovered lost ground against the Australian and New Zealand dollars on Thursday, however levels against the US dollar and Euro are under pressure. That said we hea from some commentators that the outlook for the pound remains supportive. We approach the release of this month's monetary policy decision with little expectations of a change. BUT, there is a chance that detailed guidance is released. This is where today's risk lies for sterling.
Rates at time of last update:
- Pound euro exchange rate: 0.04% lower at 1.1790.
- Pound dollar exchange rate: 0.02% higher at 1.5957.
- Pound Australian dollar rate: 0.16% higher at 1.6921.
- Pound New Zealand dollar rate: 0.6% higher at 1.9331.
- Pound SA Rand exchange rate: 0.09% higher at 15.9423.
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16:32: Euro / pound exchange rate gearing up for a breakout
ICN Financial Markets are predicting a break yet higher for the euro against the pound:
"We can see how prices have adopted a favourable reaction to the positive divergence formed on RSI 14 and MACD indicators as seen on the provided daily graph. (See below).
"Bulls succeeded in surpassing the neckline of the previous caught double bottom pattern as anticipated on October 04 and succeeded in achieving a convenient closing above the falling trend line, which connected the movements from the significant peak of 0.8771 to the short-term bottom recorded in the 0.8325 regions.
"Meanwhile, RSI14 continued to stabilize above the value of 50.00, while MACD is definitely positive solidifying the breakout above the upper line of Keltner channel.
Risk Management:
"We will move our stop loss level from 0.8325 to 0.8395 levels in order to limit the risk."
Click to enlarge:
15:30: Dollar strength holds as US deal beckons
The overarching theme on global FX markets at present is a firmer US dollar.
Omer Esiner at Commonwealth Foreign Exchange says US politicians are closing in on a deal:
"The U.S. dollar index held near a 10-day high amid signs that Washington lawmakers are inching closer to a possible compromise that could reopen the federal government and avoid a breach of the debt ceiling.
"House Republicans will meet with the President today in the Whitehouse and both sides of the isle have seemingly opened the door to the possibility of a short-term funding of the government and a modest increase in the debt ceiling that would give the President the ability to negotiate on broader issues and hopefully, be able to reach a more meaningful deal on the budget.
"While such a scenario could simply “kick the can down the road” and set markets up for yet another repeat of the recent uncertainty, the near-term solution would likely be met with renewed buying of equities and the greenback.
"The dollar also found support from yesterday’s Fed minutes, which showed the FOMC was far closer to tapering its asset purchases in September then previously assumed."
14:44: Sell GBP on any bounces
Matt Weller at GFT says he prefers to sell the British pound in the short-term:
"The GBP/USD traced out a similar, though perhaps more subdued, path as the EUR/USD over the last 24 hours, rates dipped down into the lower-1.5900s before finding support and turning modestly higher in today’s early European trade.
"As we noted yesterday, the bias in the pair is clearly to the downside as long rates remain below key resistance at 1.6000, and we would generally prefer selling any bounces back toward that area later today."
13:25: The GBP outlook is bearish, sell rallies
This just in from Shaun Osborne at TD Securities:
"The BoE meeting this morning was the highlight UK event, although as well anticipated, no change to the policy rate or asset purchase program, and no release of a monthly statement has offered little new for markets to digest.
"The GBP has accordingly had little reaction and GBP/USD remains consolidative after yesterday’s slide. Without anything significant out of the UK for the rest of the week, US developments remain the focus for the pair (Fed speakers today and headlines out of Washington).
"Price action in GBP/USD this week continues to leave a bearish bias to the pair for the coming days, particularly in view of the noted head & shoulders on the short term charts. That setup targets 1.5750. For a tactical trade we prefer selling any small rallies toward 1.6000.
12:01: Bank of England decision released
BoE maintain QE total at £375bbln and interest rate at 0.5%; no statement after decision. No immediate currency reaction.
11:50: Don't expect Bank of England decision to aid sterling
UniCredit Bank:
"The BoE’s meeting is not expected to offer big news on the bank’s policy intentions and will, therefore, have very little impact on sterling. Hence, after yesterday’s tumble more cable and EUR-GBP consolidation close to 1.59 and 0.85 is likely throughout today’s session."
11:30: Key GBP/USD levels to watch out for
Ipek Ozkardeskaya at Swissquote Bank tells us of the key levels in GBP/USD to watch out for:
"GBPUSDs sell-off has picked up an aggressive pace. The bear gather the numbers to pushed below uptrend channel floor (1.5943) in place since July.
"The development was significantly bearish yet we need a violation of 1.5884 support to trigger an extension of weakness (projection to prior range highs at 1.5759) Watch for next resistance to come into play at 1.6172 (4th Oct high), 1.6270 (1st Oct high) then 1.6343 (2013 high).
"The support levels from here are 1.5884 (13th Sept high), 1.5759 (17th June high), 1.5600 (resistance turned support), then 1.5475(200 dma)."
11:14: Exchange rate forecasts from Bank of America
As promised in yesterday's coverage, here are more details on the cumulative exchange rate forecasts from Bank of America for this month.
10:41: Pound / dollar at 1.65?
ICN Financial Markets today confirm that while the short-term outlook for the pound vs dollar is pressured, the longer term picture favours GBP:
"The pair’s downside move pushed it to trade today below 38.2% correction at 1.5940 as shown on graph. Stabilising below the mentioned level is negative and might clearly extend the downside move towards 50% and perhaps 61.8% correction at 1.5840 and 1.5745 respectively. The downside move requires stabilising below 1.6010 today.
"The trading range for today is among the key support at 1.5745 and key resistance at 1.6085.
"The general trend over short term basis is to the upside as far as areas of 1.5280 remains intact targeting 1.6540."
10:05: This decline in GBP/EUR won't last forever
A couple of interesting take-aways on just how far the pound to euro exchange rate correction will actually run. Some analysts are just waiting to buy GBP again it would seem.
08:40: Potential for Bank of England shock
Shaun Osborne at TD Securities explains why today's MPC decision may not be a non-event:
"The BoE tomorrow should be a non-event with no change to the policy rate or the asset purchase program. The one clear risk is that this is the month they decide to start releasing their monthly statements—leaving some potential for GBP shock."
08:22: MPC ahead, buy sterling at these levels?
More from Lloyds Bank, this time on their forecasts for EUR/GBP and GBP/USD:
"Today’s MPC meeting is likely to be something of a non-event, but we would still see any move up to 0.85 in EUR/GBP as a selling opportunity. GBP/USD is more dependent on the general USD trend, but we would still look for a return above 1.60 before long."
08:20: Support for pound vs Aus dollar holds
"GBP/AUD broke below support at 1.6860/70 but failed to test further levels near 1.6800," says Shaun Lee at FXWW.
Meanwhile analysts are crediting broad-based US dollar strength with the underperformance of the NZ dollar and Aus dollar.
Tim Kelleher, ASB Bank's head of FX Institutional Sales, said that the broad strength in the US dollar was possibly as investors sold out of positions following the confirmation that Janet Yellen had been nominated by the White House to lead the Federal Reserve.
"However, I'm surprised they have gone as far as they have," particularly with the issuance of NZ$2.5 billion worth of government bonds next week likely to provide support as investors buy the New Zealand dollar," says Kelleher.
08:17: Outlook remains supportive of British Pound
Lloyds Bank Research tell clients that we should not overreact to yesterday's disappointing factory data:
"Weak UK production data yesterday triggered sharp GBP losses, but even though the number was way below market expectations, it is noticeable that the 3m/3m trend in UK production actually rose again, and is at its highest level since 2010.
"It is consequently dangerous to read too much into these numbers, and we would still expect GBP to be well supported in most scenarios, even though there is still some potential for short term weakness."