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Today’s Trading Edge: GBP/USD may remain week as low inflation will delay the BOE from hiking

Posted by WorldWideMarkets . on Dec 10, 2015 6:58:11 PM


The British pound weakened against most of its major trading partners after Bank of England monetary policy decision kept both rates and the size of QE steady. No change was expected, but everyone paid special attention to see if anyone joined Ian McCafferty’s dissenting stance. The vote stayed at 8 to 1. The general consensus is focused on the recent weakness in growth and lower oil prices keeping inflation under pressure. Expectations are strong for the BOE to remain on hold a while longer.

With no rate hike in immediate sight, the currency pair may remain heavy and could see further downside as pressure mounts from the political uncertainty from the UK referendum on EU membership.

The GBP/USD daily chart shows the downward sloping range that has been in place since August. Price is also trending below all three key (200-, 100- and 50-day) SMAs. If the bearish move continues, major support will come from the 1.4850 level. It is around that area that we could see a bullish Gartley pattern form. Point D of the reversal pattern is targeted with the 78.6% Fibonacci retracement of the X to A leg and the 200.0% Fibonacci expansion level of the B to C move.    

If we see the noted support level break, further pressure could target the 1.4550 zone.  Major resistance will come from the 1.5250-1.5300 zone.

The trade: Sell GBP/USD at 1.5175 with a stop loss at 1.5225 and a take profit at 1.5025. The Risk/Reward Ratio is 1:3

Topics: GBPUSD, Bank of England, USD, $GBP, BOE


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