If you’re looking for an economic event to trade this week, you might want to consider playing the BOE rate statement.
What is the event all about?
Central bank statements are important because this is when policymakers announce adjustments or set expectations for monetary policy. In turn, monetary policy plays a role in price action because it dictates the amount of money in circulation and the rate of return for holding the country’s assets.
BOE Governor Carney and his men will vote on what they plan to do with monetary policy and announce their decision at 11:00 pm GMT tomorrow. In particular, they will let the markets know whether they will keep asset purchases and interest rates unchanged or not.
What is expected?
No actual monetary policy changes are expected for now. The BOE is likely to keep its bond purchases at 375 billion GBP and its benchmark rate at 0.50%.
Don’t forget though that the U.K. economy has been printing improvements in economic data for the past few weeks, which suggests that the BOE might make an upbeat assessment and a give a positive outlook. After all, BOE Governor Carney recently mentioned that the U.K. won’t be needing additional stimulus.
How does GBP/USD usually react?
Let’s take a quick stroll down memory lane and have a look at the last two releases to find out!
August 1, 2013
In August the MPC kept its rates and asset purchases unchanged. Not only that, but the accompanying statement also hinted that the MPC members are sticking to their forward guidance plans.
September 5, 2013
Like in August, the MPC kept its monetary policies intact. Unlike the previous month though, the central bank didn’t release any accompanying statement. Strangely enough, price action for both charts are relatively similar.
Tips and tricks
We can see that, for both instances, GBP/USD showed strength almost as soon as the London session started. Then, Cable spiked up during the BOE rate statements in August and September.
It’s important to note though that the pair tends to take a breather after a strong move. At this point it’s best to be careful, especially if the pair is near major or minor psychological levels. This is because the pair tends to reverse (and even make new highs/lows) during the U.S. session. If you’re gutsy enough, you could consider playing reversals around these levels!
Of course, a strategy based on just two months’ worth of data does not make a 100% guaranteed winning trade. These tips and tricks are just guides and not hard rules. Make sure that you do your own homework and plan your trades well before you even think of trading this report!