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Forex Analysis – GBPUSD
Since raising the UK bank interest rates three times over the last three meetings, the Bank of England has sounded more cautious than the FOMC. As inflation is expected to hit around 8% in April and could increase further later in the year, more rate hikes seem likely, including at the next policy update on 5 May (the day after the Fed). Although market pricing implies another 150 bps (to 2.25%), the BoE probably won’t raise rates by that much. According to BoE Governor Bailey, there are signs that demand is slowing down. Governor Baily and Deputy Governor Cunliffe, who voted against a rate increase at the last meeting, speak at the “Stop Scams” conference today. It’s unlikely they’ll use this event to announce monetary policy, so I’m expecting the pound to move based on what happens with the euro and the dollar.
The ActivTrader sentiment indicator is my go-to contrarian view, and when we see traders shift towards being long or short ‘en masse’ I like to take the opposite view. Currently the bullish side is gaining traction and after the close higher on 22nd March, I had also thought we could be seeing a change in trend.
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The daily 20, 50 and 200-period EMAs are pointing to downside momentum and the 20 is acting as decent daily dynamic resistance. A close above that moving average again would make me start to consider the possibilities of continued bullish strength, but until then I am happy to look for a continuation to the downside, to see if we can stop the ActivTrader out of their long positioning. 1.3000 is also a great target to the downside to try again at a sweep of the lows.
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The hourly chart shows that the intraday resistance came from the 200-period moving average and the low of the first hour during the London session. While that opening Initial Balance range holds, I am holding a short with a stop loss above the 1.31400 intraday swing highs.
