GBP USD Technical Analysis - GBP USD Trading: 2015-07-23

Policy makers focus on wage outlook

Let us consider the GBP/USD pair on the daily timeframe. On July 8 the Bank of England decided to keep the interest rate unchanged at 0.5%. The minutes published yesterday showed all nine members voted for not raising the interest rates.

The uncertainty about Greek debt crisis was an important factor in making the decision as the minutes indicated that without that uncertainty "a number" of policymakers would have found the decision not to raise rates more finely balanced than before, compared to just two policymakers that described their decision similarly in June 3 vote. Since then Greece agreed to austerity measures demanded by creditors for providing the third bailout loan and the risk of Greek exit from euro-zone diminished. Central bank policy makers are focused now on wage growth. Bank of England Governor Carney said in a testimony to parliament on July 14 that the interest rate may be raised sooner than anticipated as the economy improves. And July 15 labor market report indicated average earnings including bonus increased 3.2% over the same month in the previous year after 2.7% rise in April. The accelerating wage growth indicates improving labor market conditions and builds the dynamics for rising inflation as higher wage growths are built into inflation expectations and rising income supports higher spending, boosting economic growth and strengthening the Pound.

The GBP/USD has been rising since the interest rate decision on July 8, reversing the bearish stretch after the Greek debt negotiations with euro-zone finance ministers broke down on June 19. The pair has consolidated above the 200-day moving average. The Parabolic indicator gives a buy signal. The RSI-Bars oscillator is rising. We believe the bullish momentum will continue after the pair closes above the last fractal high at 1.56752. A pending order to buy can be placed above that level. The breach above that level should be accompanied by a breakout of the RSI-Bars oscillator above 55.8858% level. Conservative traders can use that signal as additional confirmation. The stop loss can be placed below the last Parabolic level at 1.54094. After placing the order, the stop loss is to be moved every day to the next fractal low, following Parabolic signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. If the price meets the stop loss level without reaching the order, we recommend cancelling the position: the market sustains internal changes which were not taken into account.