Additional QE Measures From The BoE Could Extend Pound Forex Losses

Published July 9th, 2009 - 08:19 GMT

The BoE is expected to keep their benchmark interest rate at 0.50% as remaining downside risks to growth will most likely lead the central bank standing pat until the end of 2009.




Fundamental Outlook
The BoE is expected to keep their benchmark interest rate at 0.50% as remaining downside risks to growth will most likely lead the central bank standing pat until the end of 2009. Although, we are seeing global leaders at the G-8 meeting talk about developing an exit strategy from the current easing cycle, there is a consensus that it is still too soon to consider executing it. However, there is increase speculation that the MPC will add to their quantitative easing measures by another £25 billion bringing the total to £150 billion. Therefore, look for an accompanying statement from the central bank outlining their intentions and giving an assessment of the impact of ongoing efforts. Sterling has remained under pressure since speculation started to increase that the BoE would add to the current bond purchase program and confirmation of it could lead to further losses. However, if the central bank signals that it will refrain from such measures, it could lead to a sharp reversal. The technical outlook is presenting scenario’s which would support each outcome which would leave us on the sidelines until after the potential statement.

Technical Outlook


The rally from 1.5800 counts best as a 3 wave rally and 3 wave rallies occur in B or X wave positions, diagonals, and triangles.  All of these are possible right now.  The decline from 1.6750 can be counted as a 5 (impulse), which favors the expanded flat count in which the GBPUSD will eventually drop below 1.5800.  In this case, the leg lower from 1.6750 would be wave i or a (complex).  There is the risk of a rally back to at least 1.6300 in order to correct the decline from 1.6750 (RSI divergence favors this interpretation).     

For More Technical Analysis Visit the Daily Technical Report

To discuss this report contact John Rivera, Currency Analyst: jrivera@fxcm.com

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