BoE to remain on hold

The USD amidst lower volatility in the FX market gained against the Yen and other major competitors. No major financial releases from the US were released yesterday allowing for speculation regarding the Fed’s intentions, to continue defining its direction Boston Fed President Collins joined the choir of Fed policymakers maintaining a hawkish rhetoric yesterday and we expect that should such signals multiply they could provide support for the USD and weigh on US stock markets as well as gold’s price.

On a technical level, USD/JPY continued to rise further on Wednesday and during today’s Asian session testing the 155.80 (R1) resistance line. For the time being, we tend to maintain our bias for the sideways motion to continue, yet note that the possibility of a bullish outlook is enhanced. On the flip side the RSI indicator has broken above the reading of 50, yet remains still unconvincing for a bullish outlook. Should the bulls find the opportunity and take charge of the pair’s direction we expect USD/JPY to clearly break the 155.80 (R1) resistance line, with the next possible target for the bulls being the 158.35 (R2) resistance level. On the flip side should the bears take over, we may see the pair breaking the 153.80 (S1) support line and continue to break also the 151.90 (S2) support base.

BoE is to release its interest rate decision later today. The bank is widely expected to remain on hold and currently GBP OIS imply a probability of 92.93% for such a scenario to materialise. Market attention is expected to shift towards the release of the accompanying statement. The market seems currently, to expect the bank to proceed with its first rate cut in the August meeting and deliver another rate cut in the December meeting. Should the bank signal a relative hawkish stance, which would allow the bank to keep rates at high levels for longer, we may see the contents of the document contradict market expectations and thus providing some support for the pound and vice versa. Another aspect of the interest rate decision which we tend to highlight is the vote count of the decision as such. In the last decision we had no policymaker favouring a rate hike, eight that voted for the rate to remain unchanged and one that considered that a 25-basis points rate cut would be the correct way forward for the bank. Even should the bank remain on hold as expected, a possible deviation from last interest rate decision’s vote count could affect the pound. Should the number of policymakers in favour of a rate cut increase, we may see the pound slipping as a dovish shift in the bank’s balance of power would be more apparent.

GBP/USD edged lower yesterday and during today’s Asian session, testing the 1.2480 (S1) support line. The RSI indicator below our daily chart hit a ceiling on the reading of 50 and has started to drop again. Overall, we expect BoE’s interest rate decision today to materially influence cable’s direction but on a technical level we cannot help noticing the pair’s bearish tendencies, given the downward motion of the past two days. Yet the 1.2480 (S1) support line was able to hold its ground against the pair’s downward pressure a couple of times in the past few days, thus we would require for a bearish outlook not only for the pair to break clearly the S1 but also to start aiming for the 1.2375 (S2) support base. Should the bulls be able to take over, we may see the pair reversing the losses of the past few days and break the 1.2600 (R1) resistance line, opening the gates for the 1.2760 (R2) resistance barrier.

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In a rather quiet Thursday, besides BoE’s interest rate decision, on a monetary level, we also note the planned speeches of ECB’s McCaul, Cipollone and De Guindos as well as BoE’s Pill. As for financial releases we also note the release of the US weekly initial jobless claims figure, while during tomorrow’s Asian session, we get from Japan, March’s All household spending growth rate and current account balance figure.