GBP/USD: A Rebound On BOE King's Remarks

GBP/USD rebounded last week as Bank of England Governor Mervyn King said in an interview that the central bank was not trying to depreciate the value of the Pound, but did acknowledge the benefit a weaker currency has had on exports.

In the same interview King indicated he may have voted to increase the BOE’s bond purchase program which currently sits at £375bn. With this in mind Wednesday’s MPC Meeting Minutes have grown in importance. We’ll look to the minutes to see if King’s view that the improved recovery would benefit from another round of stimulus. If we see additional members voting the same way we can increase bets of another round of QE, and subsequent continuation of GBP/USD declines.

This week is full of important domestic data. On Tuesday a report is expected to show CPI tick up to 2.8%. This is important because if CPI hits 3% we’ll get the BOE Inflation letter from the BOE that outlines the central bank’s plans to bring inflation back towards the 2% target. At the same time, the chances of additional bind purchases diminish due to the link QE has with inflation.

On Wednesday a report will show the change in the number of people claiming for unemployment benefits. -5.2k is expected, and the Unemployment Rate to stay at 7.8%.

The Annual Budget Release on Wednesday will also draw the attention of the market as it will provide an insight into the government’s plans for the year ahead. More spending cuts, more spending, or simply more borrowing? These are all questions that will be answered.

Finally, on Friday we’ll see the latest retail sales number. After 2 straight months of contraction analysts are expecting a rebound. 0.5% in the forecast.

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•GBP/USD has now broken to the downside of LONGER term range (1.6300 – 1.5267)

•Decline through support at 1.5820 triggered the bearish price action as expected.

•Recent break of 1.5267 key level is a bearish sign.

•1.4875 key level is next major support.

•Selling off key levels offers high probability set-ups.

•Bearish bias.