Before the today's Bank of England interest rate decision the market is counting on the so-called dove raise, i.e. the decision to raise, wrapped in a careful and not very optimistic comment. However, with the uncertainty associated with the Brexit negotiations and after the last series of weaker data, the Bank of England will have to justify the increase, which poses a risk of hawkish receipt. Lack of pound strength to rebound suggests that demand is waiting for the green light that BoE can give.
The money market has discounted today's hike to over 90%, seeing less 10% chances for the next move before the end of the year and one full move by 25 bp by the end of 2019. With such a valuation, the decision on the hike will not be an element conquering the GBP volatility. Support for the 9-0 application is the most likely scenario for building the consistency of the message. If BoE wants to raise interest rates, August is the last date this year. If you prefer the meetings where the Inflation Report is published, the next opportunity will be in November, just a few days after deciding whether the UK and the EU have set Brexit conditions. Suspending such a critical decision for a period of potential political turmoil would be ill-advised.
The Bank of England has no interest in deepening the weakness of the GBP, hence there is no justification in the overly dovish tone of the monetary statement. Too weak GBP will disturb inflation trends, which will only make it difficult for BoE to assess indicators. The present valuation of the pound even the neutral overtone of the message can be positively received, thus becoming a catalyst for closing short positions in GBP. Relief in the absence of information noise related to
Brexit (holiday break of the British parliament) may be a good excuse to draw GBP higher, but it seems to us that first the central bank is needed to be ignited.
Let's now take a look at the GBP/USD technical picture at the H4 time frame before the BoE decision is made. The market calmly awaits the interest rate decision as it is trading in the middle of the range at the level of 1.3102 at the time of writing.
The internal trend line is giving the support for the price, but in a case of a further weakness, the next technical support is seen at the level of 1.3072 and 1.3049. The most important technical support is still at the level of 1.2955. On the other hand, the technical resistance zone between the levels of 1.3191 - 1.3217 is preventing the price from falling higher, so in the bulls want to regain the control over the market, they must break out impulsively above this zone.
