GBP/USD Forecast: Eyes, Trade deficit, BOE rate decision after bullish close on charts

The GBP/USD pair witnessed a stellar 180-pip rally on Wednesday as the markets ditched the US dollars amid risk-off moves in the financial markets. The Fed came out dovish at the September meeting and the primary reason for that was the instability in the financial markets. Hence, the traders may have sold USD this week on speculation that renewed risk-off in the financial markets would force the Fed to initiate a much smaller liftoff (less than 25 basis points).

Eyes UK Trade deficit data and BOE rate decision

As noted in the morning view yesterday, the talk of the UK current account issue is gaining pace. The British Chamber of Commerce (BCC), on Tuesday, blamed weak international trade for the slowdown in the economy and also advised the BOE to delay its liftoff beyond Q3 2016. The markets expect a minor rise in the UK trade deficit in October. A bigger-than-expected jump in trade deficit will not be a good news for Sterling bulls. A rise in the trade deficit with non-EU countries will be a bad news as well.

The Bank of England rate decision and minutes are due for release later today. No one expects the bank to tweak its policy tools. The vote count is also expected to remain unchanged at 8-1. The odds of hawkish minutes are quite low since the BOE faces a major hurdle –

• The UK miners are having a tough time on account of the rout in the commodity prices. Heavyweight shares like AngloAmerican fell to record lows yesterday and announced job cuts. The FTSE 350 mining index fell to record lows.

• Telegraphing a rate hike/liftoff at the current juncture could hurt the economy.

• Other issues - low inflation, record trade deficit, worsening current account to GDP ratio - remain intact.

Hence, nothing much is expected to come out of the BOE’s event today. However, there is always a possibility of a surprise and if the BOE minutes show an interest rate vote count of 7-2, the Sterling would spike across the board, with the highest gains against the USD and commodity dollars.

Technicals – Bullish above 1.5159

• Sterling’s bearish break below falling channel seen on the daily chart on Dec 2nd was quickly undone the next day, which was followed by a three-day losing streak (which included a re-test of the channel support) and a sharp rise (yesterday) above 1.5159 (Dec 3rd high) indicates the currency could be on track to 1.5248 (50% of Apr-Jun rally+38.2% of Aug-Dec rally).

• The pair also closed above the falling trendline (blue).

• The intraday bias is bullish. A minor correction o 1.5159 cannot be ruled out, but a rebound from the same is likely to see the pair test 1.5248 levels. A break higher would expose falling channel resistance (black line).

• The bears would regain control if the spot sees a daily close below 1.5159, in which case, the pair could see a sell-off to 1.4950 levels in the days ahead.

EUR/USD Analysis: And we are back inside the symmetrical triangle

The EUR/USD rose to the symmetrical triangle resistance around 1.0990-1.10 as anticipated and extended gains in the NY session to a high of 1.1043, before trimming gains to close at 1.1025. The broad based USD weakness amid risk-off in the equities helped the currency pair rally.

With no major data due out of the EU, the pair is at the mercy of the central bank rate decisions – SNB and BOE. Both banks are widely expected to keep rates unchanged. The BOE minutes and the SNB Jordan’s speech are unlikely to provide a major hawkish/dovish surprise. Nevertheless, if the banks do surprise markets, then the resulting action in the EUR/GBP and EUR/CHF shall leave their fingerprints on the EUR/USD pair.

Technicals – Strong support at 1.0994

• The pair is back inside the symmetrical triangle seen on the daily chart. Consequently, a strong support is seen at 1.0994 (channel support).

• The pair may dip below the same, however, the daily close above 1.1006 (50% of 1.1495-1.0517) could keep the bulls in charge and thus the pair is likely to rebound/move back above 1.0994 and extend gains to 1.1087 levels (Sep 3 low).

• A daily close below 1.0994 would open doors for a fresh sell-off to 1.0890 (38.2% of 1.1495-1.0517).