The British pound continues to respect the psychological 1.3000 handle and trades in the middle of last week’s trading range. The subdued price action is likely to end after Thursday’s BOE interest rate decision. In addition to the rate decision and asset purchase facility, we will see the quarterly inflation report. Expectations are for the BOE to revise its inflation outlook higher in 2017. Economists are also unanimous for the BOE to keep the benchmark rate unchanged at 0.25%. The focus will come on the vote as some believe that we may see one vote a rate increase. Current expectations are for the BOE to raise rates until the end of 2018.
The GBP/USD daily chart shows the since making a 31-year low in early October, price has slowly made higher lows and higher highs. If the bullish rally continues, the next resistance level may come from the psychological 1.3070 region. It is around that area that price could also form a bearish butterfly pattern. Point D is targeted with the 141.4% Fibonacci expansion level of the X to A leg and the 161.8% Fibonacci expansion level of the B to C move. If valid we could see a major reversal target the 1.2600 region. If the pattern is invalidated, further upside may target the 1.3320 level.
The trade: Sell GBP/USD at 1.3050 with a stop loss at 1.3150 and a take profit at 1.2750. The Risk/Reward Ratio is 1:3