GBPUSD, Daily
June 21, the summer solstice and longest day in the Northern Hemisphere, also happens to be a key day for Sterling.
The BoE’s MPC (Monetary Policy Committee) announces the outcome of its policy meeting, where a no change in the 0.5% repo rate and QE totals (435 billion GBP) are widely anticipated. The focus will fall on the statement and minutes for guidance, which will be of particular interest following a run of overall disappointing data so far available from April and May. Most analysts, had been favouring a rate hike to be at the August MPC meeting, which would coincide with the publication of the central bank’s next quarterly Inflation Report, though this has now been reduced to a more tentative call following the weak data run. A more dovish slant in the statement and the tone of the minutes will influence the future direction of Sterling which remains weak against the US dollar, Yen and Swiss Franc whilst relatively bullish against the commodity currencies and neutral with the Euro.
The political outlook in the UK picked up yesterday with Prime Minister May winning her battle with rebels in her own party over the Brexit Bill. However, the main issue that still remains unresolved and a major hurdle for the UK-EU negotiations is the issue of the border between Ireland and Northern Ireland. There are two proposals currently being discussed but neither is acceptable, so significant compromise will be required on both sides, a classic political fudge is likely. The upshot remains uncertainty, markets hate uncertainty, and the victim in all of this is sterling.
Today, Cable trades at seven month lows ahead of the BoE with S1 at 1.3140, S2 at 1.3107 and S3 1.3070, which is also the Weekly support level. Last Thursday (June 14) before the ECB announcement, Cable was still holding 1.3375, the day closed at 1.3258. This was significantly below the 20 day moving average, generated a Death Cross on the 50 and 200 day moving averages, and breached the Monthly 38.2 Fibonacci level (the 50 Fib sits at 1.2975). The MACD dipped lower again on Tuesday (June 19) just as the RSI moved into oversold territory, following the breach of the 1.3150 level. RSI currently sits at a lowly 26.00.
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Stuart Cowell
Senior Market Analyst
HotForex
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