USD Index Awaiting Rate HikesFOMC meeting later on today and market is in a holding pattern in anticipation of likely rate hikes. Price action has been very narrow and tight, typically indicative of a impending sharp move out of the range.
Technicals support upside for the US Dollar, although seasonally the asset typically sells off March through June. Keep in mind that the trend is still bearish, and any USD longs are speculative, including FX trades. Yesterday's close bumped up against the 38.2% extension from February low and as of this writing is at 89.645. We should see significant movement around, during, and after today's rate announcement.
Fomchiking
SHORT GBPUSD @1.34 - BOE MINUTES HIGHLIGHTS - EXPECT AUGUST CUTAs expected BOE stood pat on their rate decision reiterating much of which was said last week by Gov M. Carney, the need for more analysis to be done is/ was key - " "Detailed Analysis" of All Policy Options Required" and "Extent Of Additional Stimulus Will Depend on August Forecasts".
IMO the notes were very bearish and almost but 100% chance of some sort of action in August - "Most MPC Members Expect To Loosen Policy In August". Given Brexit, and the Inflation conditions in the UK anyway a cut of the Bank Rate, if only for 12ms, makes sense to ensure a smooth transition - especially as the UK welcomes a new PM & the article 50/ Brexit negotiations are yet to get underway, this will undoubtably put some pressure on the UK economy, where much of which could be smoothed by a 25bps rate cut.
The minutes did point out interestingly that ""In the Short Run" Weaker GBP Will Boost Inflation" which makes sense, however they coupled this statement with "BOE Agents Report Some Businesses Delaying Investment", so the net impact of the Brexit event on inflation is yet to be seen.
Overall IMO the decision to hold Policy still in July was as expected however, given the median analyst had forecasted a 25bps cut, this "hawkish" response imo has opened up a beter oppourtunity to sell GBP, as in the medium-term/ post the Aug decsion GBP$ is likely to trade below the 1.28 lows, with many analysts forecasting GBP$ somewhere between 1.20-1.25.
Trading Strategy:
1. Short 1@1.34/335, sell 2@1.38/9 TP1 1.305; TP2 1.285 TP3 1.25XX. - I personally will not be operating SL on this trade as i believe BOE will cut in August 90%, and/or GBP$ will fall at somepoint on pure speculation, and/or as FOMC rate expectations continue to increase going into the later stages of the year.
2. Shorting any GBP rallies vs USD is also a good strategy from now on into the Aug rate cut, especially above 1.34.
*In the unlikely event GBP$ trades higher on the back of this e.g. to 1.38/9 then i still advise shorting, however, given how stable cable was trading into the event (and after the event) i dont expect much short headwinds now - you could tell the market didnt actually believe in the rate cut/ money wasnt behind the rate cut as GBP$ rose to its post brexit highs at 1.33... is that how a cross should react when money is actually backing a cut?
BOE Rate Cut/ Minutes Highlights:
Bank of England Leaves Bank Rate Unchanged At 0.5%
Bank Of England Leaves Bank Rate Unchanged At 0.5%
BOE Jul Minutes: MPC Voted 8-1 to Maintain Bank Rate at 0.5%
BOE Jul Minutes: 8 Voted to Keep Rate Unchanged
BOE Jul Minutes: 1 Members Voted to Increase Rate
BOE Vlieghe Voted to Lower Bank Rate to 0.25%
BOE: Most MPC Members Expect To Loosen Policy In August
BOE: MPC Members Had "Initial Exchange" on "Various Possible Packages"
BOE: Extent Of Additional Stimulus Will Depend on August Forecasts
BOE: "Detailed Analysis" of All Policy Options Required
BOE: "In the Short Run" Weaker GBP Will Boost Inflation
BOE: Longer-Term Outlook Depends on Inflation Expectations
BOE: Economic Activity Likely to Weaken in Wake of Brexit Vote
BOE Agents Report Some Businesses Delaying Investment, Hiring Decisions
