TheNews

Trading the News: Bank of England Interest Rate Decision

The Bank of England (BoE) interest rate decision may trigger a short-squeeze in British Pound and generate a relief rally in GBP/USD should the central bank talk down bets for an imminent rate-cut.

What’s Expected:

Why Is This Event Important:

Even though the Monetary Policy Committee (MPC) warns ‘a majority of members expect to support a further cut in Bank Rate to its effective lower,’ the BoE may preserve the current policy throughout the remainder of the year as there appears to be a limited risk for a U.K. recession. With Deputy Governor Minouche Shafik scheduled to depart in February, Governor Mark Carney and Co. may endorse a wait-and-see approach for the foreseeable future as the central bank sees a risk of overshooting the 2% inflation-target over the policy horizon.

How To Trade This Event Risk
Bullish GBP Trade: BoE Implements Range of New Easing Measures

• Need green, five-minute candle following the rate decision to consider a long GBP/USD trade.
• If market reaction favors a long sterling trade, buy GBP/USD with two separate position.
• Set stop at the near-by swing low/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: MPC Sticks with Status Quo

• Need red, five-minute candle to favor a short GBP/USD trade.
• Implement same setup as the bullish British Pound trade, just in reverse.

Potential Price Targets For The Release
GBP/USD Daily

• GBP/USD may face range-bound conditions over the near to medium-term as it preserves the range from July, but the pair may face a near-term short-squeeze as the exchange rate appears to be carving an ascending triangle formation, while BoE Governor Mark Carney rules out a zero-interest rate policy (ZIRP) for the U.K.
• Key Resistance: 1.3870 (78.6% expansion) to 1.3900 (50% retracement)
• Key Support: 1.2450 (61.8% expansion) to 1.2500 pivot

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