BOE minutes: GBPUSD could be picked up on the dips

The tone to the BOE minutes from the October meeting was upbeat, suggesting that the Bank was happy with the progress made on the economic front and overall, the Committee was not too worried about the ensuing US government shut down and fiscal crisis. Here are the key points from the minutes:

No member voted for any stimulus, and no one thought stimulus was appropriate.
The economic recovery was robust and survey data pointed to a 1% quarterly growth rate in the second half of the year.
Growth was boosted by three factors: 1, a strong housing market expected to boost consumer spending, 2, a fall in market interest rates and 3, a strengthening pound that was weighing on inflation pressures and boosting real consumer incomes.
The Bank also noted that there were signs that wage growth was picking up from a very low base.
Confidence had picked up strongly, which could boost business investment for the rest of this year.
The employment and growth picture were both stronger than the Bank had forecast in the August Inflation Report.
There had been an easing of credit conditions in Q3, which could support growth for the rest of this year.

Distilling this down even further, the market is likely to concentrate on two points:

1, It’s good news that Gilt yields have moderated (the 10-year yield is nearly 40 basis points lower than its September peak), which suggests that a recalibration of global rates is doing the BOE’s work for it, and for the foreseeable future it may not need to add any more stimulus.

2, The BOE isn’t worried about the strength of sterling and actually sees the benefits of a stronger pound as it weakens inflation pressures and boosts real consumer incomes. Thus, the BOE could tolerate GBP strength in the medium-term.

Every silver lining has its cloud

While the overall picture of the UK economy may be one of strength, there is a pocket of weakness. The minutes noted that exports and trade had shown no growth in Q2, and a strengthening pound since then is unlikely to boost UK exports in the second half of this year. This is significant not just for the exporters, but also for the UK’s attempts at re-balancing its economy. We are becoming reliant on the housing market again, just as we did in the lead up to the 2007 financial crisis. While this may be a problem for another day, could we be sowing the seeds of the next crisis? We shall have to see …

More upside for GBPUSD?

For the sterling trader the minutes suggest that there could be further upside for the pound, now that the BOE does not think its strength is a hindrance for growth. Added to that, Q3 GDP could be stronger than the 0.8% the market expects, after the BOE said survey growth pointed to a 1% quarterly rise (Q3 GDP is released on Friday). Thus, in the short term GBP weakness could be faded by the market.

The technical picture: GBPUSD weakness could be faded

GBPUSD has fallen sharply today and backed away from highs just below 1.6250, however it is starting to look oversold on a short term basis. Here are some short term levels that may attract some buying interest:

1.6140 – a sticky level on the downside on Wednesday.
1.6115-20 – the low from Tuesday- could act as solid ST support.
1.6090 – 21-0day moving average.
1.6075 – 200-hour moving average.

On the upside, key resistance levels to watch out for in the next 24-48 hours include:

1.6170-80- cluster of 50 and 100-hour moving averages.
1.6220 – sticky level on the way down this morning.
1.6260 – high from earlier today.
1.6280 – high (on the close) of the last 12 months, and major resistance level.

Source: Forex.com

23.10.2013