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The only thing is that sometimes they say they’re going to make things go up, but then don’t do the sorts of insane things they did after the financial crisis, and the markets should go up, but instead throw their toys out of the pram and people lose a lot of money. Just ask anyone who’s been trading ahead of a Mario Draghi presser this year!

What are you expecting from the BoE this Thursday? A rate cut? More QE? Both?

Did you consider a fourth possibility – i.e. nothing?

Yes, indications were that there would likely be some central bank stimulus measures forthcoming this summer. And UK summer-bashing aside (it is summer, whatever the weather), why should the Bank of England therefore rush into things so soon after the UK’s Brexit vote rather than wait until later on in the summer so it can monitor economic developments and ultimately make a more informed decision?

If you’re going bearish on GBP now, be careful is all I’m saying.

Cable has bounced up off its circa 1.28 lows to test 1.32, this following the appointment of Theresa May as UK PM. The daily technicals are bullish with the RSI and Stochastics heading back up from oversold. While the MACD is still heavily negative, it is making a bullish cross with its signal line while the histogram showed a divergence that pre-empted the bounce from the 6 July low.

Momentum’s zero line is currently an asymptote to its trajectory, but if the indicator goes positive over the next day or so that’s also a bullish signal. The directional indicators are beginning to converge bullishly too.    

It could be that the markets have priced in a rate cut or other form of economic stimulus from the Bank of England this Thursday. Therefore, apart from the guaranteed volatility around the meeting / press conference / whatever, further downside for GBP may not be forthcoming.

In fact, with markets prone to behaving like spoilt children when they don’t get what they want, there’s every chance Cable could post some serious upside. Even if that were to be capped at the 20-day moving average around 1.35, that’d be enough to trigger a good few stop losses – or (just maybe) a few tasty profit limits for those trading the other way.

Augustin Eden
Research Analyst
Accendo Markets

CFDs, spread betting and FX can result in losses exceeding your initial deposit. They are not suitable for everyone, so please ensure you understand the risks. Seek independent financial advice if necessary. Nothing in this article should be considered a personal recommendation. It does not account for your personal circumstances or appetite for risk.

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