The Pound is trading in a narrow range, and it’s getting narrower. The trend lines are about to collide – meaning that an explosion is underway. There are a few upcoming events that will determine the direction of explosion.
GBP/USD is bound by two trend lines that aren’t parallel. Using the hourly chart, I’ve drawn a downtrend that caps the Pound from above. It begin in the middle of last week from a peak at 1.5764. The other line is an uptrend beginning just a few hours later, from a bottom at 1.5560.
This 200 pips range became narrower: the peaks became lower and the bottoms higher. These peaks and bottoms lay out the trend lines. The trend lines meet somewhere in the early hours of Thursday, but the explosion will probably come earlier.
Tuesday features the release of British consumer prices. This monthly publication is special this time – Inflation will probably miss the government’s target of 1-3% – this will enforce Mervyn King to explain the reasons and lay out measure.
Thinking about a rate hike in the UK? Not so fast. King is convinced that this was a one time event. If the expectations are met, and inflation reaches an annual level of 3.6%, what will King say in his letter? Nobody knows. This uncertainty will lead to choppy trading and to an explosion.
If expectations aren’t met, it’s already enough for a surprise. King will be pleased that his analysis was correct. The Pound won’t smile.
On Wednesday, Britain sees many employment figures, with the Claimant Count Change as the most significant figure. Will the number of unemployed Brits falls again, for the third time in a row? A renewed rise will hurt the Pound. Another drop is expected, so no big moves here.
But there’s another release at the same time – MPC Meeting Minutes. In their recent meeting, there was no rate hike and no allocation of new cash to the Quantitative Easing program – also known as Pound spilling program.
Good for the Pound? Wait. Also here, King has an impact. In a public appearance, King didn’t rule out pumping more cash, thus weakening the Pound. Did he say something about it in the recent meeting? Did another member raise this possibility? The members usually don’t vote unanimously.
Add the meeting minutes uncertainty to the employment figures, and you have a recipe for choppy trading. If GBP/USD will remain in a narrow range during Tuesday, it will most likely chose a direction on Wednesday.
The next resistance line above 1.5764 is 1.5833. Looking down, 1.5350 supplies significant support far down.
Let the games begin!
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