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Forex Flash: What does the FGBP/USD have to offer? – Commerzbank, UBS and TD Securities

FXstreet.com (Barcelona) - Both the BoE minutes and the UK Budget are history now, although market participants were surprised by the less dovish tone than previously expected. As a consequence, the pound managed to gather pace and climb to the doorsteps of the key resistance of 1.5200, although faltering then and retracing to the current area of 1.5125/30

Karen Jones, Head of FICC Technical Analysis at Commerzbank, expects the cross to gradually slide back to the psychological mark of 1.5000, immersed within the broader bearish context. “We believe that the longer term down move has further to run and view last week’s advance as a short term correction only. Longer term we look for losses to 1.4229, the 2010 low”, concludes Jones.

G.Yu and G.Berry, Strategists at UBS, confirm the bank’s bearish stance on the cross, arguing, “A closing cross lower in momentum would signal resumption of the bear trend. Support is at 1.5004 ahead of 1.4832. Resistance is at 1.5199”.

In the wake of today’s BoE minutes, Rich Kelly, FX Researcher at TD Securities, commented, “We still view more QE as possible enough to be data dependent over the short-term, but continue to think there will be enough improvement in the data into Q2 for the MPC to keep QE on hold.”

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Forex Flash: BoE follows Fed pattern – UBS

With the (likely) introduction of 'forward guidance' and 'intermediate thresholds' to anchor policy as much as possible, the stage is set for low rates and/or QE to remain in place until unemployment and inflation reach levels consistent with 'escape velocity' in the UK. According to UBS Research Analyst Geoffrey Yu, “ In essence, the BoE is choosing to do a 'Fed' rather than a 'BoJ'. For sterling, although the immediate risk of policy-driven debasement has been alleviated, we would sell sterling into the post-budget rally as the broader direction for the BoE is towards more flexibility, and in Chancellor Osborne's own words, more 'monetary activism'.”
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