Early in New York, sterling traded lower to the U.S. dollar after three UK key releases. This was the first time the Bank simultaneously released its monetary policy decision, inflation report and meeting minutes. As expected, the BOE kept rates steady at 0.5% with only McCafferty calling for a 25 basis point hike. Expectations were for possibly two dissenting votes, with some analysts targeting three. The other main driver for sterling weakness was the lowering of the inflation forecasts for 2015 and 2016.
Price action on the GBP/USD daily chart shows the key breakdown of the 50-day SMA. Erasing all of yesterday's gain, price may initially target target the 200-day SMA which currently trades around the 1.5388 level. A further collapse of the currency pair could target the 1.5100 handle. It is around that area that we could see the formation of a bullish ABCD pattern.
If price respects the noted reversal pattern, we could see a major reversal drive price back towards the upper boundary of its recent range.
The Trade: Sell GBP/USD at 1.5540, with a stop loss at 1.5605, and a take profit at 1.5410. The Risk/Reward Ratio is 1:3
Edward J. Moya
Chief Technical Strategist
WorldWideMarkets Online Trading