GBP/USD hits the top of list of pairs to watch with the latest monetary policy decisions from both the Federal Reserve and Bank of England coming very soon and likely to rock the financial markets.
Intermarket Snapshot
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Fresh Market Headlines & Economic Data:
- Latest U.S.-China trade talks ‘constructive’, Beijing says
- China July factory activity shrinks for 3rd month; China’s service sector activity grows at slower pace in July
- Canadian real gross domestic product was up for a third consecutive month in May, rising 0.2%
- U.S. employment cost index increased 0.6%, seasonally adjusted, for the 3-month period ending in June 2019
- UK Consumer Confidence improves two points to -11 for July 2019
- German retail sales jump, labour market shows resilience
- Euro area annual inflation is expected to be 1.1% in July 2019, down from 1.3% in June
- Preliminary flash estimate for the second quarter of 2019 GDP up by 0.2% in both euro area and EU28
- Australia inflation ticks up in Q2, rate cut still in play
- Australia private sector credit slows to 0.1% in June vs. 0.3% in May
- New Zealand eadline business confidence fell 6 points to net -44% in July’s ANZ Business Outlook
- Japan July consumer confidence index fell 0.9 points to 37.8
- Japan housing starts up 0.3% in June
Upcoming Potential Catalysts on the Forex Calendar:
- Federal Reserve monetary policy statement at 7:00 pm GMT
- Australia AIG manufacturing index at 11:30 pm GMT
- Japan manufacturing PMI at 1:30 am GMT (Aug. 1)
- China Caixin manufacturing PMI at 2:45 am GMT (Aug. 1)
- Various European manufacturing PMI starting at 8:15 am GMT (Aug. 1)
- U.K. manufacturing PMI at 9:30 am GMT (Aug. 1)
- Bank of England monetary policy statement at 12:00 pm GMT (Aug. 1)
What to Watch: GBP/USD
The big day is here as the highly anticipated Federal Reserve monetary policy decision is coming in just a few hours. And if you haven’t yet done your homework on the event, be sure to check out Forex Gump’s event guide on the July FOMC Statement before working on your trade plan.
The expectation is that the Fed will cut interest rates by 0.25% to <2.25%, but the likely driver for the markets will be the answer to the question, “how many more rate cuts after today?” Other questions to answer that will likely have market influence are, “will they end the balance sheet reduction program?” and “how many dissenters will there be?”
We’ve also got a potentially big day for the British pound with the latest monetary policy decision from the Bank of England in the upcoming London trading session. They’ve got a pretty complex situation of their own over in the U.K. with the Brexit situation distorting the economy, so it will be interesting to see if the BOE will move interest rates and in which direction, or if they stick to a wait-and-see approach.
So, it’s tough to make a directional call on either currency until the events occur, but we should be ready to make moves on GBP/USD as volatility is surely to pick up in the next 24 hours.
On the one hour chart above, we can see the pair has been on a ride lower for quite some time. We are seeing a bounce from the most recent swing lower that saw a bottom around the 1.2150 area. This could be a setup for a Fibonacci resistance entry play between 1.2250 – 1.2350, but again, with two tippy top tier events on the way, it’s tough to say whether that area will hold as resistance if retested.
For the bears, be on the look out for a retest of that area and if the BOE is dovish (signals a rate cut) while the Fed sticks to “one and done” rate cut rhetoric, then a short play may be a good idea if that Fib area holds.
For the bulls, a combination of the Fed signaling more rate cuts ahead and/or halting the balance sheet reduction program, plus a signal from the BOE for a rate hike would likely rocket GBP/USD higher. In that scenario, GBP/USD looks like a good short-term buy between 1.2150 up to 1.2300.
