The Bank of England is expected to leave interest rates on hold today, but the rally in the British pound over the past few days suggests that some traders may keep the long position on the sterling and wait for a surprise move of the central bank to raise the interest rate by a quarter percent and set up the short term rate to the level of 6.00 percent. Compared to the rest of the world, the UK economy is certainly standing on stronger footing.

Yesterday, manufacturing PMI surged to a 3 year high, which comes in sharp contrast to the deterioration in the US ISM index. Output prices hit the highest level in 15 years, indicating that inflation is still a big concern. Even if they do not raise rates, this suggests that Bank of England Governor King will continue to hold onto his hawkish bias when he delivers their Quarterly Inflation report next week.

The following technical analysis gives us a detailed lookout on what is expected to happen to the pair.

The buying point of GBP/USD is at 2.0288; based on a strong support and a failure of making lower then the previous support at 2.0203.

-Fibonacci retracement 38.2% is the first target taking profit at 2.0340
- Fibonacci retracement 50.0% is the Second target taking profit at 2.0382
-Closest support will be the first stop loss at 2.0273
- Strong previous support will be the stop loss at 2.0203

To strengthen our analysis; we use many other indicators, starting with MACD (Moving Averages convergence divergence); we notice the crossing of the two moving averages above the zero line, the shorter term moving average is faster than the long term and is pointing upwards. In order to find the power of the market, we use RSI (Relative Strength Index). In this example RSI is clear uptrend.

The momentum oscillator is very important to understand the strength of the market and as we see on the graph; it break the zero line. The Stochastic oscillator breaks 20% line and moving upwards. Most of the indicators show us the strength of the sterling against the US dollars.

* The following analysis is for information only; Finotec is not responsible for any
decisions or misinterpretations based on the given text.

By Finotec’s professional analyst,
Tony B.

dealingdesk@finotec.com