The Bank of England is the latest central bank to take actions to support the economy today, sparking volatility in the British pound in just the last hour. Will this bring another short-term opportunity to play the downtrend in GBP/USD?
Before moving on, ICYMI, today’s Daily London Session Watchlist looked at an opportunity forming on EUR/JPY on continued risk-off sentiment, so be sure to check that out to see if there is still a potential play!
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Fresh Market Headlines & Economic Data:
- The Monetary Policy Committee at a special meeting on 19 March voted to cut Bank rate to 0.1% and increase its holdings of UK government and corporate bonds by £200 billion.
- Fed moves to satisfy global demand for dollars
- Philly Fed manufacturing index sees big plunge in March
- US weekly jobless claims jump amid coronavirus layoffs
- U.S. lawmakers pushing ahead with third coronavirus aid package
- EU’s Brexit negotiator Michel Barnier says he has tested positive for the coronavirus
Upcoming Potential Catalysts on the Forex Calendar for U.S. & Asia:
- New Zealand Credit card spending at 2:00 am GMT (Mar. 20)
- Japan Bank holiday (Mar. 20)
What to Watch: GBP/USD
As mentioned in the intro, the Bank of England came out today with its own stimulus actions to combat the economic damage likely to come from coronavirus pandemic. And to no surprise, volatility quickly picked up in Sterling pairs with a mixed reaction but bullish in most cases. It seems that the reaction was a risk sentiment one with Sterling rising against the major currencies, with more out performance against the safe havens / low-yielders. Without major events on the schedule ahead, focus may remain on Sterling in the short-term, which we think makes the downtrend in GBP/USD one to watch for the session.
On the one hour chart above of Cable, we can see the pair bouncing higher from session lows around 1.1480, again on the fresh news from the BOE, but also likely on more actions from the Fed to support U.S. dollar liquidity in the financial markets. The rally is strong enough to take the pair to the Fibonacci retracement area of the latest swing move lower, which also lines up with the falling ‘highs’ pattern seen over the last few sessions.
With the pair about to test major support, this could be an opportunity to play the trend lower at a better price, especially if you’re in the camp that thinks the recent stimulus actions aren’t enough to support the damage from the coronavirus. If so, look out for bearish reversal patterns at the Fibs (roughly 1.1700 to 1.1900 range) before considering a short position. And with a daily ATR of over 200 pips now, there’s a lot of opportunity to catch quick moves for the session.
If you’re a bull on GBP/USD, it’s a tough argument to make right now other than more short-term dollar weakness as the Fed takes more actions, and on the possibility of more positive coronavirus news ahead. But if these scenarios do play out and we see a break above the falling ‘highs’ pattern / Fib retracement area, then look out for support to build around the 1.1900 area before considering a long position. Remember that is the counter-trend bias at the moment so keep your risks small and consider more conservative trade management strategies like scaling into a position.