It’s been an action-packed morning for the British pound, with the release of the monthly jobs report, the quarterly inflation report, and BOE Governor Mark Carney’s corresponding speech. Overall, the reports confirmed what many traders were expecting: the labor market continues its gradual (some would argue, *too* gradual) recovery, but price pressures are effectively nonexistent for now, leaving little reason for the BOE to hike rates until the second half of next year (for more on the today’s UK data, see my colleague Kathleen Brooks’ reports, “UK employment data: a tiny something to get excited about” and “Initial thoughts on the Bank of England Inflation Report”).
Pound sterling has fallen on the back of these reports, with GBP/USD ticking down toward its 14-month low around 1.5800, but the limited scope of the drop suggests that there was nothing truly unexpected in today’s releases.
Perhaps the most interesting price action has been in EUR/GBP, which is rallying strongly after consolidating in lackluster trade over the last two weeks. As we go to press, the pair is showing a large Bullish Engulfing Candle* on the daily chart, signalling a sharp shift from selling to buying pressure and hinting that rates could rally further heading into the weekend.
That said, there are some near-term hurdles for bulls to navigate before waving the all-clear flag. For one, rates are currently testing the 50-day MA, which has reliably capped the pair for the last four weeks. Likewise, the MACD indicator has started to turn higher, but is still below the “0” level, so momentum has not shifted completely in bulls’ favor as of yet.
For today, traders should closely watch the 50-day MA at .7885: if EUR/GBP can close above that level (and the MACD can eclipse its “0” level), an extended rally toward the top of the channel near .8000 would be favored later this month . On the other hand, a failure to clear that hurdle would point to more consolidation within the recent .7800-80 range for now.
*A Bullish Engulfing candle is formed when the candle breaks below the low of the previous time period before buyers step in and push rates up to close above the high of the previous time period. It indicates that the buyers have wrested control of the market from the sellers.
Source: FOREX.com
For more intraday analysis and market updates, follow us on twitter (@MWellerFX and @FOREXcom).