- GBP/USD: the pound is closing in on the 10-Hr SMA, where next?
- GBP/USD: awaiting the EU Summit and BoE, Irish border needs a resolve.
GBP/USD has been attempting a recovery towards the 10-hr SMA at 1.4022 in a recovery of the UK CPI induced slide to today's lows. Currently, GBP/USD is trading at 1.4014, down -0.07% on the day, having posted a daily high at 1.4068 and low at 1.3983.
GBP/USD ran up to the 1.4085 level due to Brexit optimism ahead of this week's EU Summit where negotiators have reached an agreement on a post-Brexit transition period. The immediate focus will turn to finding a practical solution to avoiding a hard border with Ireland.
For a detailed description of the noise, see here: Brexit negotiations and recent agreements fueling a bid in the pound explained - ING
Away from the negotiations, markets will also be paying close attention to the Bank of England when it meets this Thursday.
BoE to be hawkish?
Despite that the UK CPI slipped to 2.7% in Feb (from 3.0% in Jan and against market expectations for a drop to 2.8%. PPI input and factory gate prices were also below forecasts for the month), in principle, the agreement on the transition period bolsters the Bank’s assumption that the adjustment to the post-Brexit world will be “smooth”, and that a rate hike inMay will be on the cards, as argued by analysts at ING and Scotiabank:
"Combined with the stronger momentum we’ve seen in wage growth over recent months, makes it all the more likely that policymakers will hike rates in May," - ING
"The data weighed on the GBP but markets continue to lean towards the idea that the BoE will move to tighten policy in May, especially with the UK/EU making clear progress on Brexit terms,” - Scotiabank.
GBP/USD levels
"The pound is essentially consolidating strong gains from Monday at this point, however, we see intraday support at 1.3970 (40-day MA). Trend signals remain support GBP-supportive at this point, which suggests Cable should continue to attract support on dips," analysts at Scotiabank suggested.
The pound is consolidating above the descending resistance that comes as a support on dips within the reversal from 1.3711 recent lows, (Feb 28th). The current price action on the near term charts has the pair supported in swing high territory. On the wide, and above 1.4080/80, the 200-week moving average is located at 1.4288 and remains a key target through 1.4148. A deeper support below the trend line comes in at 1.3890/08, (21-D SMA) and lower, 1.3840. The Feb 9th low is at 1.3765 and that guards the 1.3658 September peak and the 1.3479 2016-2018.
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