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Andreas Zanin
Analysis | November 9, 2021

KTM FX Weekly: Analysts’ reaction to Bank of England meeting

The pound hammered against the G10 currencies on the BoE policy take last week. Against the euro, the pound fell to 0.8560 posts BoE meeting, and the rally extended led by the follow-up buying.

In the week gone by, EURGBP rallied 1.48%, the most substantial weekly gain since April 2021. And also, the cross is trading between 200MAs; above here, 0.8660 exists, which was the last swig high.

As the daily RVI remains sold and the weekly RVI has picked up markedly, the risks of a new decline to below the recent low at 0.84 have eased dramatically in the next few days.

We favor new rebounds to resistances at 0.8660-0.8670. A break of these last barriers would give an impulsive move higher, paving the way for a more pronounced rally to the resistances at 0.8720 and 0.8760. Keep an eye around 0.8660. if resistance is not broken, then it will be a U-turn. December ECB and BoE meeting will provide further clues. Until such time, the range trading theme remains in play.

The supports stand at 0.8550, 0.8460, and 0.8400.

 

“A dovish hike or gradual hikes from BOE could pop the EURGBP” this is what we forecasted last week. And that is what happened. As per the weekly chart, the price finds a floor at 0.8400. On the upside, the trend is supportive, but the market needs to take out the recent higher at 0.8660 to confirm the trend once again.

Analysts’ reaction to Bank of England meeting, please see below:

  • James Smith at ING said, The UK central bank looks poised to increase rates this December, and we expect two further hikes next year. But growth headwinds and a comparatively less severe inflation issue suggest markets are overestimating the pace of tightening.
  • Danske Bank said it was, however, a “hawkish hold” in the sense that the BoE signals that a rate hike will be appropriate in the coming months if data are broadly in line with expectations.
  • Arjen van Dijkhuizen and Bill Diviney at ABN AMRO said, “we continue to expect the BoE to raise rates by 15bp at its 16 December policy meeting, followed by a further 25bp hike in H1 22, taking Bank Rate to 0.50%.”
  • Paul Donovan at UBS said, the Bank of England indulged in a round of the Quid Games yesterday. Some investors thought they knew the rules of the game and got hurt when the bank failed to raise rates (there was a signal that rate hikes are coming). It is a reminder that with committee decisions it is perhaps unwise to extrapolate a few comments into an absolute certainty. Nothing in economics is absolute. He added that the central banks are a contrast in policy, with the ECB offering little beyond a tiny taper, and the Bank of England toying with the timing of a monetary tightening.

This week we will see CPI data for Germany and US and German ZEW economic sentiment.

It is important to always keep in mind the risks involved in trading with leveraged instruments.

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