Suspense is elevated around the Bank of England (BoE) MPC meeting, with hawks and doves squaring up over QE. GBP/USD has witnessed a sharp rebound after hitting 1.3570 last month. The cable is now inching towards interim resistance of 1.4000 but the pound will need the BoE to turn decidedly less dovish the mentioned 1.4000 level, as economists at Société Générale report.
Risk of short covering squeeze if MPC splits on QE
“Support to maintain the current pace of Gilt purchases and complete the GBP875 B programme in December as originally set out should still be in the majority vs those who think purchases should be curtailed. The bank is of the view that higher inflation is temporary, but inflation expectations one year out have drifted above 3%. A split vote could in theory be read as positive for sterling and a steepening in Gilts and swaps.”
“The covering of short GBP/USD CFTC positions could lend support for a squeeze back to 1.3950 but 1.40 will be a tough slog without concrete guidance that QE will end this year.”
“Daily MACD is attempting an entry within positive territory which denotes potential upside.”
“A move beyond 1.4000 can take the pair towards 1.4110 and even towards the peak of February / May at 1.4240.”
“Consolidation above 200-DMA at 1.3780/1.3750 will be crucial for further uptrend.”
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