GBP/USD Oversold Ahead of BoE- Will Governor Carney Talk Up Cable?

- Bank of England (BoE) Widely Anticipated to Retain Current Monetary Policy.

- Will the BoE Show Concerns About the Recent Depreciation in Sterling?

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Trading the News: Bank of England (BoE) Interest Rate Decision

Even though the Bank of England (BoE) interest rate decision is likely to reveal another 8-1 split within the central bank, the fresh comments may boost the appeal of the sterling and spur a near-term rebound in GBP/USD should the committee change its tune for monetary policy.

What’s Expected:

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Why Is This Event Important:

The recent selloff in the British Pound exchange rate may spur a wider dissent within the Monetary Policy Committee (MPC) as it raise the risk for imported inflation but, more of the same from the BoE may drag on the exchange rate as Governor Mark Carney appears to be in no rush to normalize policy.

Expectations: Bearish Argument/Scenario

Slowing production paired subdued price/wage growth may push the BoE to endorse a wait-and-see approach throughout the first-half of 2016, and the sterling may face additional headwinds over the coming months should the central bank highlight a cautious outlook for the region.

Risk: Bullish Argument/Scenario

Nevertheless, the BoE may sound less dovish this time around as the U.K. economy moves closer to full-employment, and the British Pound may face a near-term rebound over the coming days should the committee discuss normalizing monetary policy sooner rather than later.

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How To Trade This Event Risk(Video)

Bearish GBP Trade: More of the Same as BoE Endorses Wait-and-See Approach

• Need red, five-minute candle following the rate decision to consider a short GBP/USD trade.
• If market reaction favors selling Cable, short GBP/USD with two separate position.
• Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward.
• Move stop to entry on remaining position once initial target is hit, set reasonable limit.

Bearish GBP Trade: Committee Scales Back Dovish Tone Amid Sterling Depreciation

• Need green, five-minute candle to favor a long GBP/USD trade.
• Implement same setup as the bearish sterling trade, just in the opposite direction.

Potential Price Targets For The Release

GBP/USD Daily

Chart - Created Using FXCM Marketscope 2.0

• The descending channel carried over from back in September along with the bearish formation in the Relative Strength Index (RSI) continue to cast a bearish outlook for GBP/USD, and the pair stands at risk of giving back the advance from the April low (1.4565) should we get more of the same from the BoE.
• DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-long GBP/USD since November 19, but the ratio continues to come off of recent extremes as it narrows to +1.26, with 56% of traders now long.
• Interim Resistance: 1.4860 (78.6% retracement) to 1.4910 (61.8% retracement)
• Interim Support: 1.4290 (78.6% retracement) to 1.4310 (61.8% expansion)

Impact that the BoE rate decision has had on GBP during the last meeting

December 2015 Bank of England (BoE) Interest Rate Decision

The Bank of England (BoE) interest rate decision yielding another 8 to 1 split, within Ian McCafferty still standing as the lone dissenter as the committee waits for ‘sustained firming in domestic cost pressures’ to start normalizing monetary policy. Even though the Monetary Policy Committee (MPC) sees ‘robust growth’ in the U.K. economy, it seems as though Governor Mark Carney remains in raise the benchmark interest rate off of the record-low as price/wage growth remains largely subdued. The sterling struggled to hold its ground following the BoE rate decision, with GBP/USD slipping below the 1.5150 region but, the pair failed to retain the decline during the North American as it ended the day at 1.5158.

Read More:

NZDUSD Testing Slope Support- Rebound to Offer Short Entries

The Pain of Tolerance is Withdrawal: It’s a Different World without QE

Price & Time: USDJPY - Flirting With a Mid-1990’s Redux

USD/CAD Technical Analysis: Multiple Major Targets Hit This Morning

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--- Written by David Song, Currency Analyst and Shuyang Ren

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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