November 4, 2021 9:00:51
With today’s Bank of England decision on a knife-edge, the MPC faces what some are calling its “moment of truth”. Markets are pricing in a 50-60% chance of a rate hike of 15 bps, though some analysts are expecting a bigger move or no move until December.
Rising inflation expectations and continued hawkish commentary from key MPC officials may see the bank act pre-emptively. The extra spending at last week’s Budget, which was essentially a net fiscal giveaway, might also nudge the bank towards a hike now.
But markets are hoping for four rate hikes next year which may be a stretch too far considering the increasing winter headwinds about to hit the UK economy. The vote will probably not be unanimous with more members wanting to see post-furlough economic data. Watch also for the inflation forecasts which could confirm the transitory stance of the bank and push back on the extent of market tightening.
GBP/AUD toys with 200-day SMA
This pair has been in a bearish channel since mid-September. Prices failed to get above the late July high at 1.8972. We’ve seen a series of lower highs and lower lows into November.
Prices made a new bottom at 1.8126 on Tuesday and were oversold on several indicators. A strong rebound then followed after the RBA meeting. This has taken prices through the halfway point of the January to August move around 1.8282. The 200-day SMA has also been pierced and acts as initial support at 1.8335.
We are now more or less at the top of the descending channel. Yesterday’s high at 1.8425 will be the target for buyers if the BoE is more hawkish. A long-term Fib level sits at 1.8487. Otherwise, play the top of the range and go short to push back below the 200-day SMA.
GBP/CAD holding above 1.69
Although the bearish undertone persists in this pair, support is very strong just below current prices. After an extended run lower from the September highs, the bears have struggled to break decisively beneath 1.69.
The healthy consolidation over the last two weeks in October looked to be bearish as trend signals aligned for a move lower. But so far, the May lows at 1.6858/60 are holding strong. Just below here sits the late 2020 low at 1.6769. Prices need to get above 1.71 to signal a change in trend.
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