By: Andrei Tratseuski
The Pound had seen the greatest amount of volatility coming behind the BOE minutes. Despite the fact that the BOE minutes came nothing short of predictable, with merely Andrew Sentence dissenting, the Pound gained strength. The reason to the rally was a more hawkish stance by the Committee than previously. The Committee taking a break from its previous stance which denied any possibility of inflationary pressures grew wearier of possible escalation in prices. The following came as a god send to Cable longs which were petrified of a more dovish stance. The future of the Pound lies in the hands of upcoming Retail Sales.
Tomorrow’s projections call for Retail Sales to print at 0.4%. If the Retail Sales come above expectations, expect hawkish comments by Mr. Sentence to proliferate and take more life, in a future weighting more on BOE interest rate decision. Higher interest rates are positive for that respected currency. Underperformance of Retail Sales will put the inflationary pressures under the rug and weight negatively on the Pound.
Trading the Pound will be hard until the dreaded Retail Sales release. Nonetheless, there is some sort of technical analysis that is prompting the currency pair to move. On 1-Hour Chart, GBP/USD is showing a solid Broadening triangle (Right Angle/Descending Triangle).
The following formation tends to be bullish. Being on the bottom of a downtrend, the following formation calls for a possible move to the upside. In order for this pattern to manifest, a resistance level needs to be breached. Current Resistance level hovers at 1.5715, a break of the following level would prompt a rally to the upside.
Nonetheless, there are some obstacles that need to be leaped over in order for the pattern to manifest. First of all, the volume has decreased during a rallying stage, suggesting a possible exhaustion of a movement. Nonetheless, we have to keep in mind that big portion of the money is sitting on the fence waiting for the release of Retail Sales. Furthermore, the flow of Money has dwindled during the same timeframe, causing room for a concern.
The key for future movement to the upside will be the price action today. IF the price action will be able to hold above the lower 1st Standard Deviation of the Bollinger Bands located at 1.5525, we can expect a price movement to the upside. However, if currency breaks that support level, expect a move to the lower bound of the triangle formation.
