BoE Tonight. Cable Brexit Risk Decision:
The central bank merry-go-round continues tonight, with Forex traders’ attention shifting across the Atlantic Ocean from the US Federal Reserve to the Bank of England.
Thursday see’s not only a decision on rates, but an equally important quarterly inflation report out of the UK central bank. With the country’s Brexit referendum looming large, the BoE isn’t expected to make any rash decisions on rates, but it’s this risk that makes trading around the decision so interesting.
With reports coming out of the UK that Mark Carney has been preparing the UK’s top banks for what is being dubbed as a ‘Brexit cut’, any elaboration in tonight’s quarterly inflation report will surely be pounced upon by savvy Cable traders looking to get a head start on expectations.
I encourage you to go back through your forex calendar with a GBP filter applied to highlight the complete lack of better than expected economic releases since the last time the BoE met in April. Retail sales, labour market indicators, housing, manufacturing and construction indexes all missed expectations.
But the bank has to lean toward neutral heading into the referendum…
Moving onto some Cable charts, the daily shows price in a higher time frame bearish channel. Having rejected off horizontal resistance almost perfectly in our zone (look at where the rejection bars closed and opened), price has come out of a confluence of resistance.
The fact that the daily shows a bearish trend, you could interpret the 4 hour chart as a flag and possibly position yourself for a slide lower again.
With Carney dubbing June’s Brexit referendum ‘the biggest domestic threat’ to financial stability that the country is facing, you can see where the bank’s focus is and while it is not yet the expected outcome, I can see any mention of the dreaded ‘b-word’ causing Cable to lurch lower.
The risk is high so plan your trade and trade your plan. You can’t go wrong managing your risk around solid, higher time frame levels.
Don’t forget to check out my colleague Arthur Drakopoulos’ EUR/GBP charts on the Vantage FX News Centre for an alternate trade idea heading into the release.
Chart of the Day:
OIL rallied towards last week’s swing highs after the weekly US crude inventory levels unexpectedly fell for the first time in 2 months.
With supply issues still being reported out of Canada thanks to yet to be fully controlled bushfires, as well as the political uncertainty in Saudi Arabia, the price of Oil is still front of mind for traders heading into Thursday.
“USD Crude Oil Inventories (-3.4M v 0.1M expected)”
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Taking a look at a higher and lower time frame chart side by side, you can the jump in price that the supply miss caused on the lower time frame, and then the area of consolidation resistance on the higher time frame to the right.
You need to interpret how big these headline supply issues are within the bigger picture, Saudi Arabia/OPEC Oil trading sphere. To be honest, I’m just waiting for the bearish reality to hit the Oil market again. It’s funny how often this reality hits at major technical levels such as this… Beware of the headline trap.
On the Calendar Thursday:
GBP BOE Inflation Report
GBP MPC Official Bank Rate Votes
GBP Monetary Policy Summary
GBP Official Bank Rate
GBP BOE Gov Carney Speaks
USD Unemployment Claims
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