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May 02 - 10:55 PM

GBP/USD - COMMENT-Sterling Bulls Squeezed - Bank Of England Pivotal

By Andrew M Spencer  —  May 02 - 09:06 PM

A 1% slide in sterling led Friday's month-end shakeout of short dollar positions, turning positive GBP technical signals neutral. If the Bank of England disappoints the hawks this week, the pound could fall further, as the market is positioned long nL1N2MN2VQ.

The UK's rapid COVID-19 vaccine rollout and easing lockdowns are widely expected to produce a strong economic rebound.

The big question is: will the BOE follow the Bank of Canada's hawkish stance nL1N2ME1G6 by cutting government bond purchases nL8N2ML9FM, or will they follow the lead of the U.S. Federal Reserve, in waiting until inflation and job creation are hitting targets nL1N2MK0XO, before taking action?

The UK faces ongoing Brexit-induced headwinds, after the worst economic performance of major nations during the coronavirus in 2020.
This backdrop suggests the BOE may take its cue from the Federal Reserve and hold off on any tightening, but increase growth projections and inflation forecasts.

Charts show conflicting signals, suggesting a period of range trading for cable into Thursday's BOE policy decision, with Scotland's election the same day unlikely to have any impact.The 61.8% retracement of April's bounce at 1.3799 held on Friday and is now key support.
A break would target the 1.3681 lower 21-day Bollinger band and the 1.3669 March/April low.

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Source:
Refinitiv IFR Research/Market Commentary

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