DailyFX

Bearish GBP Momentum at Risk on Hawkish BoE Inflation Report

David Song

- Bank of England (BoE) to Raise Fundamental Outlook on Stronger Recovery

- Will BoE Implement Exit Strategy Ahead of Schedule?

Trading the News: Bank of England Inflation Report

The Bank of England’s (BoE) Inflation Report may heavily influence the near-term forecast for the British Pound as market participants see the central bank implementing its exit strategy ahead of schedule.

What’s Expected:

Time of release: 11/13/20139:30 GMT, 4:30 EST

Primary Pair Impact: GBPUSD

Expected: --

Previous: --

DailyFX Forecast:--

Why Is This Event Important:

There’s speculation that Governor Mark Carney will rein in the optimism surrounding the U.K. economy, but the central bank may adopt a more hawkish tone for monetary policy as the stronger recovery raises the risk for a prolonged period of above-target inflation.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Gross Domestic Product (QoQ) (3Q A)

0.8%

0.8%

Retail Sales ex Auto (MoM) (SEP)

0.3%

0.7%

Jobless Claims Change (SEP)

-25.0K

-41.7K

The BoE looks poised raise its economic assessment for the U.K. economy on the back of the stronger recovery, and the central bank may show a greater willingness to move away from its easing cycle as the region gets on a more sustainable path.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Consumer Price Index (YoY) (OCT)

2.5%

2.2%

Trade Balance (SEP)

-2.700B

-3.268B

BRC Shop Price Index (YoY) (OCT)

0.1%

-0.5%

However, the recent slowdown in price growth may give the BoE greater scope to support the economy throughout 2014, and we may see a more meaningful correction in the British Pound should the central bank present a greater argument toretain its highly accommodative policy stance.

Potential Price Targets For The Release

GBPUSD Daily

Forex_Bearish_GBP_Momentum_at_Risk_on_Hawkish_BoE_Inflation_Report_body_Picture_2.png, Bearish GBP Momentum at Risk on Hawkish BoE Inflation Report
Forex_Bearish_GBP_Momentum_at_Risk_on_Hawkish_BoE_Inflation_Report_body_Picture_2.png, Bearish GBP Momentum at Risk on Hawkish BoE Inflation Report

Chart - Created Using FXCM Marketscope 2.0

  • Threatens Range Following U.K. CPI Report; Bearish RSI Momentum Remains Intact

  • Interim Resistance: 1.6250 Pivot to 1.6300 Pivot (2012 highs)

  • Interim Support: 1.5900 Pivot to 1.5910 (78.6% Fibonacci expansion)

How To Trade This Event Risk(Video)

Bullish GBP Trade: BoE Raises Forecast; Adopts More Hawkish Tone

  • Need green, five-minute candle following the statement to favor a long GBP trade

  • If reaction favors buying British Pound, long GBPUSD with two separate position

  • Set stop at the near-by swing low/reasonable distance from entry; need 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: BoE to Retain Highly Accommodative Stance Throughout 2014

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