Will the BoE Trigger Further Stimulus Measures?

The U.S. dollar was traded mixed against its G10 counterparts on Wednesday's and early Thursday's sessions as the market remains in wait‐and‐see mode ahead of the upcoming economic policy decisions from some major central banks, starting today with the Bank of England (BoE) and the Swiss National Bank (SNB) and ending next week with the Bank of Japan (BoJ) and the Federal Reserve.

Today session looks busy throughout the day, the European and New York sessions, and we could be in for some decent volatility, with plenty of data ahead, particularly from the U.S. and the E.U. The spotlight of the day remains the BoE policy meeting, which is expected the central bank to remain on hold following the rate cut, by 0.25%, four weeks ago.

Why Today's BoE Meeting is Very Important
The sterling will be under the microscope today! Thursday is here and all the traders await the Bank of England's monetary policy meeting. The central bank had held its interest rates unchanged at 0.5% for seven a half years and its quantitative easing steady at £375 since July 2012. However, following the Britain's decision to leave the European Union, the nine members of the BoE monetary policy committee voted unanimously in August to lower the main interest rate at the record low of 0.25% to bolster the economy from Brexit consequences and prevent it from a recession. The committee was also forced to announce further stimulus measures. The bond‐buying program increased by £60 billion to £435 billion, the central bank offered 10 billion in new corporate bond purchases and £100 billion in Term Funding Scheme.

Analysts foresee the economy to slow down in the coming quarters and this is what adds pressure on the next policy meetings. The central bank tries to avoid a possible recession using stimulus measures. Although, in my opinion, the measures already announced may be enough to prevent the economy from recession, averting BoE to announce more stimulus measure in the meeting today. As the measures are fresh, they will need some time to show their impact, thus I believe policymakers would prefer to wait a bit more to see whether economy performs in line with expectations before taking any decisions. On the other hand, one may say that the lower than expected inflation rate released on Tuesday may prompt policymakers to think that economy needs a further boost.

On Wednesday, the U.K. employment report released revealed that Brexit effect was very little in this sector. The unemployment remained unchanged at 4.9% while the average earnings including the bonus for the three months to July rose 2.3% above market expectations of 2.1% but below the previous figure for the three months to June. The claimant count change increased by 2.4k in August from a decrease of 3.6k before. All this data and the prospect of the BoE monetary policy meeting today pushed the British pound higher against almost all the majors on Wednesday and early Thursday sessions. Prior the awaited BoE interest rate decision and the release of the important meeting minutes, the retail sales for August are coming out.

GBP/USD – Technical Outlook
The British pound plunged below yesterday's first support level at 1.3165, however, during the NY session it gained momentum and extended its move above the suggested target of 1.3250, reaching 1.3275 at the end of the trading session. The GBP/USD pair is trading ‐0.15% so far this week, following a negative weekly candle ‐0.20% the previous week. However, the pound maintains a positive figure so far in September +0.80%. From a technical point of the view, the outlook remains bullish over the short and the medium terms, as the 50‐SMA on the daily chart is providing a strong support to the price action, near the 1.3150 area, while the technical indicators remain positive as they move north. In the same chart, the daily, momentum indicators head higher above their midlines, adding to the bullish picture of the pair.

In focus, the Bank of England policy meeting that might bring additional volatility over intraday basis on the markets. Moving to a lower timeframe, technical indicators retreated from bullish areas suggesting a pullback, however, I would expect this to be temporary. Therefore, the intraday traders should watch the 1.3220 – 1.3230 zone, which coincides with the 1‐hour 50‐SMA and the 4‐hour 100‐SMA.

If the bulls manage to maintain the price above the latter zone before and during the BoE meeting then we would expect some more aggressive extensions towards the long‐term ascending trend line, near 1.3280. Above there, the 1.3300 barrier will be the next obstacle for the bulls, which also includes the 200‐SMA on the 1‐hour chart, a minor obstacle for now. On the other hand, we could see another push lower, towards 1.3200 and 1.3165, which are likely immediate barriers, before the pair moves to 1.3140, yesterday's low.

Greenback Mixed Against the Majors
The greenback traded mixed against most of its rivals on Wednesday's and early Thursday's session. The main gainers against the dollar were the pound and the Japanese yen while the dollar surged against the commodity currencies, except the New Zealand dollar. There were some minor releases in the U.S., including August export and import price indexes, which plunged 2.4% yoy and 2.2% yoy, respectively. It should be noted, that over the past year all export prices have fallen more than 2.5%, which is the smallest annual drop since the price index plunged 1.7% on annual basis in November 2014. An hour before, the latest Mortgage Bankers Association (MBA) data recorded a seasonally‐adjusted 4.2% increase in applications for the latest week ending September 9th. The previous week it gained 0.9% and the week before 2.8%.

Eurozone's CPI The Main Impact of the Euro Today
The euro traded mixed against its other G10 counterparts on Wednesday's and early Thursday's sessions. It gained against the Canadian dollar and the Australian dollar while it fell vs. the pound and the Japanese yen. There has been no major progress from a technical point of view. There were some minor releases which came out from Europe, including the French and Italian CPIs for August. Both remained at low levels, 0.4% and ‐0.1%, respectively. Industrial production in the European Union as a whole has declined by 1.1% on a monthly basis in July and this is the first decrease since November 2014. The Eurozone CPI will be the initial focus today. The Eurozone's final CPI for August is expected to remain unchanged at 0.2%. Headline inflation in Euro area has remained at low levels and this is still a long way from the European Central Bank's inflation target of below, but close to 2%. The European Central Bank has already moved interest rates deep into negative territory and bought billions of government and corporate bonds to try and spur inflation, but without any success, until now.

EUR/USD – Technical Outlook
The euro picked up momentum against the U.S. dollar and surged above the 1.1260 – 1.1270 zone, before retreating below the aforementioned zone. The EUR/USD pair it constrained within the recent range, below the critical mentioned zone. There has been no major progress from a technical point of view. The EUR/USD pair was consolidating in a narrow 80 pips since Friday's session as the Eurozone economic reports were minor. The common currency is currently moving above the three SMAs (50‐SMA, 100‐SMA, and 200‐SMA) and tested again the 1.1205 support level but failed to pass below it. Furthermore, the price is still trading in an uptrend move and if the pair clearly surpasses the resistance zone at 1.1260 – 1.1270 will meet the 1.1330 barrier. On the other hand, a break below the 1.1200 psychological level which overlaps with the rising trend line will open the door for the next support level at 1.1140. On the 4‐hour chart, technical indicators hold neutral within negative territory while the MACD oscillator is falling and is moving below its trigger line.

What to watch today
As I said above, Thursday is a big day for the British Pound. Several indicators and the Bank of England policy meeting will determine its direction. Early in the morning, the SNB will have its interest rate decision followed by a press conference. No changes are expected to the current ‐ 0.75% interest rate. A while later, the U.K. retail sales for August are expected to reveal a drop of 0.5% compared to July's increase of 1.4%. The retail sales ex‐fuel is expected to have a similar drop of 0.8% versus 1.5% before. Therefore, traders' attention turns for a while in Euro area before it comes back to U.K. again. Eurozone's trade balance for July is coming out and will be followed by consumer price index. The consumer prices are expected to keep the same pace of growth of 0.2% annually in August.

The Bank of England monetary policy committee is expected to vote on the central bank's interest rates. Following August's rate cut to the record low of 0.25% after over seven years they were keeping the main bank rate at 0.5% the market expects the policymakers to vote unanimously to keep the rate unchanged. No changes are expected also for the asset purchase program of £435B.

Going to U.S., the retail sales are expected to come out. The market forecast wants the retail sales to remained flat in August as well as the same month before, while the retail sales ex‐autos are forecasted to rise 0.3% versus a drop of 0.3% the previous month. The producer price index for August and the weekly jobless claims are also scheduled for release. The business inventories are expected to rise 0.1% in July from 0.2% before, while the capacity utilization is predicted to slow down slightly to 75.7% from 75.9% before.