Rising inflation supports British Pound
UK inflation hit 2.9% in May, and Bank of England left rates unchanged. But three members voted for rate hike against one vote for a hike in May. Will the British Pound continue strengthening?
The Bank of England left its key interest rate at 0.25%, leaving unchanged also the size of its asset purchase program at £435 billion at its meeting last Thursday. Monetary Policy Committee decision was widely anticipated but the 5-to-3 vote showed two more BOE members voted for a rate hike after just one vote for a raise in May. The reason for unexpected hawkish stance of MPC members was the upbeat inflation report: consumer prices continued rising in May, gaining 2.9% on year following 2.7% advance in April. The increase in MPC’s hawkish tilt indicates concern over rising inflation as unemployment remains low at 4.6%, pointing to likely shift to monetary tightening sooner than previously believed in case inflation levels above the central bank’s target rate are sustained.
On the daily chart the GBPUSD: D1 is testing the 200-day moving average MA(200).
- The Parabolic indicator gives a sell signal.
- The Donchian channel is neutral, it is flat.
- The MACD indicator is below the signal line and the gap is shrinking, which is a bullish signal.
- The stochastic oscillator is rising but has not reached the overbought zone.
We believe the bullish movement will continue after the price breaches above the fractal high at 1.2816. It can be used as an entry point for a pending order to buy. The stop loss can be placed below the lower Donchian bound at 1.2635, confirmed also by the fractal low. After placing the pending 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 (1.2635) without reaching the order (1.2816) we recommend cancelling the position: the market sustains internal changes which were not taken into account.
Technical Analysis Summary
| Position | Buy |
| Buy stop | Above 1.2816 |
| Stop loss | Below 1.2635 |