Carney, forward guidance, GDP : The main event risk during the 8/6 London session was the Bank of England Inflation report and bank gov. Mark Carney’s press conference. There are a couple of main takeaways:
1) Carney provided forward guidance, essentially saying the bank won’t increase interest rate or “taper” QE until unemployment falls below 7.0%. It is 7.8% at the moment and BoE’s forecast shows expectation of this scenario in 2016 Q3 (3 years from now).
This could be GBP-bearish if the market believes that other central banks will taper sooner ie. Fed. Extending low interest rate and QE through 2016 does seem to be a long time relative to what Fed and ECB might do, though ECB has not given forward guidance yet.
2) BoE’s GDP forecasts: 2013 revised up from 1.2% to 1.5%; 2014 revised up from 1.9% to 2.4%.
You can check out the official report from the official BoE page here.
The market apparently reacted very GBP-positively to the large upwards revision of the GDP. But forward guidance is linked to employment. Still, this reaction shows that the GBP-bulls are still in control. Let’s take a look at the cable chart.
GBP/USD 4H chart 8/7/2013 8:35AM ET
(click to enlarge)
Slingshot: The 4H GBP/USD chart shows a dip to almost 1.52, where it tested a 200-4H-SMA. This also tested a previously established bottom as support as price bounced off the 1.52 and 200SMA factors and pushed through the 1.5433 July-high. There could be some more upside risk toward the 1.5527 resistance pivot, then 1.5683, up to the 1.5750 June-high.
Sideways: There is a short-term bullish outlook, but it is in the context of a sideways market in the higher degree. The 4H RSI has been below 30 and above 70, back and forth, reflecting a sideways momentum. The moving averages also reflect a lack of direction. We can use the 1.52 area and 2004H SMA as a guide to “mean” price action. The market went to 1.4812 before coming back up (that is almost 400 pips from 1.52). Will the bullish attempt also see resistance if it nears the 1.56 handle (400 pips from 1.52)?
Fan Yang CMT is a forex trader, analyst, educator and Chief Technical Strategist for FXTimes – provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.