Monday, November 10, 2014

British pound prospects | All eyes on Bank of England this week

** Today is Veterans Day in the USA, a national holiday. Trading during the times of the normal US session will therefore be light.

If last week was all about the FOMC, the ECB, the Bank of Japan and their respective currencies, this week is about the Pound Sterling and the Bank of England. As we have noted previously, the fundamentals in the UK are sound, and only a few months ago the British unit could do no wrong. It was beating its own records for strength on various announcements, including employment, GDP, retail sales and inflation.

But then the wheels seemed to come off. The catalyst for this was the referendum on Scottish independence which, while not carried, created a structural weakness in Sterling that could take some time to work out. In the meantime somewhat less than unambiguous signals from the Bank of England governor, Mark Carney, did not help matters. Now, on the Technical Analysis side of things, the GDPUSD pair is on the point of breaking through the consolidation range that we identified some time ago, to the downside, and in the process exceeding its 12 month low, set in Nov 2013.

All eyes on BoE this week

Wednesday sees significant releases in the UK unemployment rate, average earnings and unemployment claims. This will occur at 8:30 GMT. An hour later we will have the Bank of England quarterly inflation report. As low inflation is now the major concern of most central banks, the results for this will be closely watched.

It should not be lost sight of that the largest factor in the strength or otherwise of the pound will be expectations of core interest rate rises. If and when the talk in the Forex market starts to centre on this subject, the pound can be expected to get legs.

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