NEW YORK (Forex News Now) – Sterling range traded against the U.S. Dollar most of Monday in anticipation of U.K. GDP which was released early this morning. GBP/USD analysis shows the rate traded between 1.5920 and 1.6015 throughout Monday’s session.
MPC member Andrew Sentance, speaking to a group of bankers in London Monday made some hawkish comments which supported Cable. Sentance stated that there was a “disconnect” between inflationary trends and the BOE’s monetary policy. “I don’t think it’s a question of ‘if’. The timing is a matter of debate,” Sentence said referring to the BOE raising interest rates.
Sentance stated that the BOE had to raise rates if the bank was to retain credibility as a guarantor of low inflation. He also added that an increase in the U.K. key interest rate would strengthen the pound and moderate the domestic impact of global inflation.
Andrew Sentance has been the sole dissenting MPC member calling for higher interest rates to combat inflation. In light of recent inflation data out of the U.K., there exists a possibility of other MPC members joining Sentance’s hawkish position. No significant economic data came out of the U.K. on Monday.
Sterling Collapses on GDP Number
The daily fx news early this morning showed U.K. Preliminary GDP for the last quarter of 2010 dropped by -0.5%, considerably lower than the increase of +0.5% the market was expecting and substantially lower than the previous number which was revised downward from +0.8% to +0.7%.
The disappointing news caused GBP/USD to drop dramatically, trading above the 1.60 level several hours before the announcement and declining to 1.5750 after the news came out. Traders will be attentive to BOE Governor Mervyn King, who will speak later today in Newcastle at 2:40 PM EST.
Technical Outlook for GBP/USD
Intraday analysis of GBP/USD shows the rate traded higher after making its weekly low of 1.5834 last Monday to hit its weekly high of 1.6058 on Tuesday, which marked the two points of the range GBP/USD would trade in for the rest of the week before closing at 1.6002 on Friday. This action penetrated key resistance at the 1.5909 level and
Cable even managed to close the week just above the psychological 1.6000 level.
In addition, GBP/USD managed to close above its 200-day Moving Average that now comes in at the 1.5439 level. The moving average’s slope has turned somewhat positive to yield a bullish medium term outlook for GBP/USD. Nevertheless, additional consolidation or correction to the downside may be in order this coming week with Cable’s 14-day RSI is in the upper part of neutral territory at 65, which may impede further upside price potential. Resistance to the upside for GBP/USD shows initially at the 1.6058 level, just above the psychological 1.6000 level, and then at 1.6106, 1.6182 and 1.6297. Support for GBP/USD is initially indicated at 1.5909, and then lower at the 1.5837, 1.5716 and 1.5663 levels.
Top Economic Events to Watch for This Week
- MPC Meeting Minutes and BBA Mortgage Approvals – Wednesday has the MPC Meeting Minutes for the January meeting. The minutes will show how MPC members voted on the interest rate decision, as well as the votes for the Asset Purchase Facility. The consensus for the results of votes on interest rates is expected to be 1-0-8, with Andrew Sentance again expected to be the dissenting vote. The rate decision will tentatively be followed by U.K. BBA Mortgage Approvals that are expected to be +29.9K.
- U.S. Rate Decision and FOMC Statement – Wednesday also has the U.S. Rate Decision and accompanying FOMC Statement. The Fed’s monetary policy and the direction of U.S. Interest rates wield an enormous effect on the forex market. The Fed is expected to leave the Fed Funds rate unchanged at <0.25%.
- U.K. Nationwide HPI – Thursday marks the release of Nationwide HPI, the U.K.’s second earliest indicator for housing inflation and is expected to be -0.2%.
- World Economic Forum – On Wednesday the WEF Annual Meetings begin in Davos, Switzerland. The meetings will run through Saturday and are attended by finance, trade and prime ministers; central bankers and business leaders from more than ninety countries. The high level meetings are usually open to members of the press with officials talking to reporters during the day which can result in significant forex market volatility.
- U.S. Advance GDP – On Friday, U.S. Advance GDP and the Advance GDP Price Index will be released. GDP and the GDP Price Index have a considerable effect on currency market trading and will undoubtedly increase the volatility in the forex market. U.S. Advance GDP is expected to be +3.5%. The previous number has already been revised upward from +2.3% to +2.6%.