Dovish Yellen sent dollar tumbling across the board and overshadowed Brexit fears and bearish UK’s OBR economic forecasts. Consequently, GBP/USD pair rose to 1.4270 and extended gains to a high of 1.4291 in Asia, before falling back below hourly 200-MA level of 1.4239 levels.
Eyes BOE rate decision
Bank of England is likely to keep key policy tools unchanged and the minutes are likely to show unanimous voting in favor of keeping rates unchanged. OBR revised UK 2016 inflation and GDP forecasts lower and the BOE is likely to acknowledge the same. The policy statement and minutes are likely to carry a dovish tone, given the ECB is in no mood to back off from monetary easing and now even the Fed has surprised with its dovish stance.
Meanwhile, ahead of BOE rate decision and post BOE event, Brexit fears could continue to weigh over British Pound.
Technicals – Possible inverse head and shoulder on daily chart
Sterling’s failure to take out 50-DMA at 1.4285 followed by a drop below 1.4252 (50% of 1.4669-1.3835) and hourly 200-MA of 1.4239 indicates the currency could test 1.42 levels (falling trend line {red} support).
Bears would make a comeback if the spot breaks below 1.42, in which case prices would drift lower to 1.4154 (38.2% of 1.4669-1.3835).
On the higher side, a recovery above 1.4252 (50% of 1.4669-1.3835) could see the spot re-test 50-DMA of 1.4286.
Bullish move would gains momentum once 50-DMA hurdle is toppled, opening doors for 1.4330 (23.6% of 1.5930-1.3835).
Overall, the pair may head lower to 1.4050 again if it fails to move above 50-DMA. A drop to 1.4050, if followed by a recovery would mean an inverse head and shoulder formation with neckline around 1.4376 levels.
EUR/USD Analysis: Eyes 23.6% Fibo hurdle of May 2014 high – Mar 2015 low
Euro’s rebound from rising trend line support of 1.1058 (also yesterday’s low) followed by a daily closing above 1.1218 (Mar 10 high) indicates the currency is likely to take out hurdle at 1.1256 (61.8% of 1.1714-1.0517) and test 1.1293 (23.6% of Mar 2014 high-Mar 2015 low).
Meanwhile, a failure to take out 1.1256 could see the spot fall back to 1.1186.
However, dips are likely to see fresh bids come –in unless the spot sees a daily close below 1.1186 (rising trend line drawn from Mar 2015 low-April 2015 low and extended).
Bullish invalidation is seen only if spot breaks below 200-DMA seen at 1.1045.
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