Market volatility has calmed over the past week, but there were some key events that had the potential to generate strong short-term opportunities, including two events related to central bank policy.
Out of six discussions, Only one scenario/price forecast saw both financial and technical arguments being raised To become a potential candidate for a risk management overlay. Check out our review of that discussion to find out what happened!
Watchlists are price predictions and strategy discussions supported by fundamental and technical analysis, and are a crucial step towards creating an account High quality discretionary business idea Before working on a risk management and trading plan.
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On Wednesday, our strategists braced for the upcoming monetary policy statement from the Bank of England, which is likely to spark significant volatility for the British pound this week.
In our BoE Statement Event Guide, we discussed how recent UK inflation data supported the general market consensus that the BoE will be slightly hawkish on its statement, and that the MPC is likely to vote 8-1. Keeping the key interest rate at 5.25% For this scenario, we discussed a bullish setup on GBP/USD to watch.
But in case the BoE comes out more dovish than expected, we have focused on EUR/GBP. Given the strong uptrend since the beginning of May and the recent performance of the Euro as Eurozone data continues to show growing optimism and economic stability in recent months, we believe a cautious outcome may attract fundamental and technical buyers to the EUR/GBP pair.
Well, the Bank of England surprised the markets this week with a more pessimistic event than expected, indicated by a 7-2 vote to hold and comments by Bank of England Governor Bailey suggesting that when cuts happen, they may be “more significant” than what happened. Markets currently expect.
This result led to an immediate rise in sterling, but the movement was limited, perhaps due to profit taking (buy the rumor and sell the news) as the pound saw pressure leading up to the event. It is also possible that traders were quick to reduce risks on sterling after the event given that UK GDP was down on Friday to potentially impact sterling sentiment once again.
Speaking of the UK GDP event, this update was much better than expected It signaled the end of the UK recession. This triggered a bullish rush towards sterling, not only taking profits from the BoE event, but also potentially reversing the new short trades that the BoE statement may have brought.
The EUR/GBP pair pulled out of the uptrend ahead of the Bank of England event, creating a strong buying opportunity on the technical upside if a pessimistic scenario materializes, and for those who went with the uptrend there before the event, the odds are likely to be positive with management… Active risk and profit taking ahead of UK GDP.
For those who waited for the results of the Bank of England event to take an uptrend on the EUR/GBP pair, the odds are that you saw a slightly negative result, but that was highly dependent on your risk management plan as the EUR/GBP pair traded flat. Higher after the event, but then lower thanks to UK GDP updates.
Overall, we rate this discussion as “likely not neutral” in terms of being supportive of a positive outcome. Our asset selection and bias were generally correct, but with another top-tier event in the UK after the Bank of England event, individual risk management and trading decisions were a big factor in the final result.
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