GBP USD Technical Analysis - GBP USD Trading: 2016-02-02

Bank of England meeting on Thursday

The Britain’s pound sterling strengthened on Monday amid better manufacturing PMI in January by Markit. Will the upward movement continue?

The Britain’s PMI rose in January to 3-month high of 52.9 points from 52.1 points in December. This is its record growth since June 2014. In theory, this increases the probability of the rate hike by the Bank of England this year. The Bank’s next meeting is scheduled on Thursday 4. No change in interest rate is expected and it is likely to remain unchanged at the current 0.5%. The main reason for weak pound is still the risk of Britain exiting EU. The referendum on UK’s membership in EU is to take place by the end of 2017 but several market participants expect the event this year.

On the daily chart GBPUSD: D1 has hit a fresh 7-year low late December and began correcting upwards. The Parabolic indicator and MACD give buy signals. RSI is advancing remaining below 50? No divergence. The Bollinger bands have widened a lot which means higher volatility. The bullish momentum may develop in case the pound surpasses the Friday’s high of 1,442. This level may serve the point of entry. The initial risk-limit may be placed below the Parabolic signal, 7-year low and the last fractal low at 1,407. Having opened the pending order we shall move the stop to the next fractal low following the Parabolic signal. Thus, we are changing the probable profit/loss ratio to the breakeven point. The most risk-averse traders may switch to the 4-hour chart after the trade and place there a stop-loss moving it in the direction of the trade. If the price meets the stop-loss level at 1,407 without reaching the order at 1,442, we recommend cancelling the position: the market sustains internal changes which were not taken into account.