GBP/USD: Delay in Bank of England rate hike priced-in?

GBP/USD has dropped 6.2 percent in the last three-week as May rate hike bets evaporated, courtesy of weak data.
An oversold cable may recover if BOE portrays the first-quarter slowdown as a temporary lull.

Omkar Godbole FXStreet Contributor

Most economists polled by Reuters expect the Bank of England (BOE) to vote 7-2 to keep rates unchanged today and expect a rate hike in August.

A month ago, a 25 basis point rate hike in May looked like a done deal. However, the unexpectedly weak first quarter data and Carney's cautious stance poured cold water over the growing odds of a May rate hike.

The British Pound nosedived from 1.4377 to 1.3485 and in the process breached the long-term ascending trendline (sloping upwards from the March 2017 low and April 2017 low). Clearly, the markets have priced-in a delay in the rate hike.

As of writing, the GBP/USD pair is trading at 1.3560 and looks oversold as per the daily relative strength index. Further, the pair has also created back-to-back doji candles on the daily chart, signaling bearish exhaustion.

So, a corrective rally could be in the offing, especially if Carney and Co. refer to the first quarter slowdown as a temporary lull and keep August rate hike on the table.

Post-BOE, the focus would shift to US consumer price index (CPI), scheduled for release at 12:30 GMT. An above-forecast reading would put a bid under the US dollar.

GBP/USD Technical Outlook

A close today above the 10-day moving average would add credence to the bearish exhaustion as indicated by the multiple doji candles and could yield consolidation in the short-term. Major resistance is seen at 1.3712 (March 1 low) and 1.3825 (38.2 percent Fibonacci retracement of the recent sell-off).

On the downside, a close below 1.3485 (recent low) would signal a continuation of the sell-off. The 5-day MA and the 10-day MA are still trending south, indicating a bearish setup. Support is seen at 1.3462, 38.2% 2017/2018 rally and 1.3301 (Dec. 15 low).

	TREND INDEX	OB/OS INDEX	VOLATILY INDEX
15M	Bullish	Neutral	High
1H	Bullish	Neutral	Low
4H	Bullish	Neutral	Expanding
1D	Bearish	Oversold	High
1W	Bearish	Oversold	Shrinking
Updated May 10, 04:00 GMT

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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