GBP/USD: pre-BoE jitters in thin trade, jumps circa 20 pips

• GBP/USD started out Asia today in thin trade with an opening bid of around 20 pips.
• This is a key week for sterling traders with the Bank of England (BoE) rate hike expected.  

GBP/USD started out Asia today in thin trade with an opening bid of around 20 pips hitting a high of 1.3120 before dropping back within the same 10-minute tick to below 1.3110 where 1.3102 has been the low so far. There does not seem to be a catalyst for the spike although this is a key week for sterling traders with the Bank of England (BoE) rate hike expected.  

Brexit angst continues to weigh and is making for the ebbs and flows and a directionless price. However, the BoE should be taking the limelight for the meantime. Analysts at TD Securities, (TDS),  explained that they expect the MPC to vote 8-1 in favour of a 25bps Bank Rate hike next week.  

“We expect the committee’s projections to remain largely unchanged from the May Inflation Report, as growth and inflation have come out in line with their May forecast. This is likely the last rate hike for a while: slowing inflation, stagnant (but reasonably healthy) wage growth, and Brexit uncertainty are all likely to play into a more cautious tone through the remainder of 2018 and much of 2019H1. The MPC will also provide an estimate of the neutral interest rate; we expect them to emphasize a range (2.5%-3.5%) rather than a point estimate.”

BoE foreign exchange implications:

The analysts at TDS’s base case suggest  only a tepid reaction in GBP, but argue that EUR/GBP could see a near-term lift if the BoE strikes an overtly cautious tone:

“Recent ranges remain a powerful centre of gravity, however, so our expectations to see a major directional move next week are limited. An upside surprise could come, however, if the market perceives the new neutral rate estimate as a strong signal of future policy intent.”
GBP/USD levels

The descending support line is located down at 1.2957 guarding the Fibonacci support at 1.2918, (50% retracement of the move up from 2016).   However, Valeria Bednarik, chief analyst at FXStreet explained that according to the 4 hours chart, the pair presents a neutral-to-bearish stance having held Friday below a directionless 20 SMA:

“Technical indicators are heading nowhere within negative levels … the bearish momentum will likely increase on a break below 1.3045, a static strong support.”