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

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by , 02-04-2016 at 10:02 AM (1979 Views)
Trading the News: Bank of England (BoE) Interest Rate Decision

The Bank of England (BoE) interest rate decision is likely to reveal another 8 to 1 split as the central bank remains in no rush to normalize monetary policy, but the updated forecasts may heighten the appeal of the sterling and fuel a larger recovery in GBP/USD should the central bank highlight a greater risk of overshooting the 2% inflation target over the policy horizon.

What’s Expected:

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Why Is This Event Important:

Even though Governor Mark Carney largely endorses a wait-and-see approach, an upward revision in the BoE’s economic projections may boost interest rate expectations as central bank officials remain upbeat on the U.K. economy and prepare households/businesses for higher borrowing-costs.

Nevertheless, signs of sticky price growth paired with the pickup in private-sector lending may push the BoE to drop its dovish tone, and the fresh updated coming out of the central bank may spur a larger recovery in the British Pound should the central bank show a greater willingness to implement a rate-hike in 2016.

How To Trade This Event Risk

Bearish GBP Trade: MPC Continues to Endorse 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: BoE Highlights Greater Risk of Overshooting Long-Term Inflation Target

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

Potential Price Targets For The Release

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  • Long-term outlook for GBP/USD remains tilted to the downside as the pair preserves the downward trend from back in August, but the near-term advance in the Relative Strength Index (RSI) may foreshadow a larger correction in the exchange rate as the oscillator threatens the bearish formation carried over from May.
  • Interim Resistance: 1.4910 (61.8% retracement) to 1.4930 (38.2% expansion)
  • Interim Support: 1.3870 (78.6% expansion) and 1.4000 pivot


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