Since Monday, the pair is trading in the sideways channel of 1.3245-1.3190; investors are waiting for the key event of the week – the meeting of the Bank of England, its decision on the interest rate and the announcement of forecasts for GDP and inflation. In addition, during the press-conference, the head of the Bank, Mark Carney, can hint at the further actions of the regulator.
Note that the market has been expecting the Bank of England to take decisive action since the end of July, when during the ECB conference, Carney said that the economic situation in the UK created the conditions for revision of monetary programs. However, after these statements, the British statistics began to show weak results: inflation went down, the consumer price index in June fell from 2.9% to 2.6%, which had shaken one of the arguments in favor of rate hikes. At the same time, the average wage growth did not reach the growth of inflation (in May, the index fell from 2.1% to 1.8%), which put pressure on retail sales (in May it decreased by 1.6%, and in June it wasn’t restored enough), and the volume of GDP. In addition, the uncertain situation with Brexit forces the Bank of England to refrain from any major changes in monetary policy.
As a result, we should not expect any radical decisions from today’s meeting of the British regulator. The rate is likely to remain at the same level of 0.25%, and the forecast for GDP growth may be lowered again, which will put pressure on the pound. Recall that in May, the Bank of England has already reduced the forecast for the growth of the British economy this year from 2.0% to 1.9%.
Support and resistance
Technically, the pair is trading around 11-month highs in the sideways corridor of 1.3245-1.3190. In addition, its upper border coincides with the Murray level [+1/8], which can trigger a correction. In case of the breakdown of this level the price can grow to the levels of 1.3300 (Murray level [+2/8]) and 1.3450 (Fibonacci retracement 50.0%). However, the fundamental data will provide a significant pressure, thus, the breakdown of the lower limit of the range will allow the pair to go further down, to levels 1.3110 and 1.2980.
Support levels: 1.3190, 1.3110, 1.2980.
Resistance levels: 1.3250, 1.3300, 1.3450.
In the current situation, short positions are more preferable, they should be opened below the level of 1.3190 or at the level of 1.3300 with the target of 1.3110 and stop losses at 1.3240 and 1.3340. Above the level of 1.3300, long positions will be relevant with the target of 1.3450 and stop loss at 1.3250.