The Bank of England has extended a helping hand to the pound

Will the British pound be able to recover after the most devastating week since October? The Bank of England's decline in foggy Albion's GDP forecasts for 2019 from 1.7% in the previous estimate to 1.2% (the weakest level since the global financial crisis), unfavorable political landscape and a gaining US dollar lowered the GBP / USD quotes from January 22. At the same time, a rich economic calendar, another parliamentary vote on Brexit and a reassessment of decisions made at the last BoE meeting allow sterling to claim to be the most interesting currency of the week.

Despite pessimistic estimates of economic growth and a 25% chance of a recession within six months, Mark Carney managed to save the pound from falling into the abyss by saying that the scenario should not be considered to investors without a repo rate increase. If a glimmer of hope appears in a sea of negativity, then the market tends to buy back the asset by lowering its quotes. This is exactly what happened with GBP / USD. The peak towards the middle of the 28th figure found its bulls, even though the futures contracts reduced the chances of at least one tightening of the BoE monetary policy from 50% to 41%.

Bank of England GDP Projections


Financial markets no less than the Bank of England care about the final version of Brexit. The chances of indiscriminate and mild withdrawal from the EU are about the same, which suggests heightened risks for the GBP / USD peak to 1.25 or rally to 1.35. Despite the fact that the previous versions of the agreement with the European Union, proposed by Theresa May, were either rejected or postponed, in January, the pound was optimistic about this information. "Bulls" seriously expected that the parliament will not allow chaos. Many have stated that article 50 of the Treaty of Lisbon will be prolonged, which provided the sterling with the ground for growth. In fact, it was the usual euphoria from the potential retention by the Foggy Albion of a place in the EU (in the case of a repeated referendum, this option seemed the most likely). As soon as it became clear that the lawmakers were in no hurry to extend the terms of the article, speculators began to take profits, which resulted in a wave of sales of the analyzed pair.

Along with the parliamentary vote on the draft agreement with Brussels on February 14, sterling will face a busy economic calendar. The slowdown in GDP from 0.6% to 0.2% q / q in the fourth quarter was another blow to the bull positions. With skepticism, Bloomberg experts look at releases of data on inflation and foreign trade. Consumer prices in January may slow down from 2.1% to 2%, which, with the constancy of core inflation (+ 1.9% y / y), strengthens the MPC pigeons position.

Technically, on the daily GBP / USD chart there is a correction within the framework of the transformation of the "Shark" pattern at 5-0. Kickbacks to 38.2% and 50%, as a rule, are used to form long positions. Restoration of an uptrend will enhance the risks of implementing targets for the "Wolfe Waves" pattern.

GBP / USD, the daily graph


The material has been provided by InstaForex Company -