Hawkish ECB, surprise BoE hike, weak ISM services
ECB lifted its benchmark rate by 25bp to 3% as widely expected. Another hike in September is not likely as ‘vigilance’ is not used today. However, as Trichet say that a ‘progressive withdrawal of monetary accommodation is warranted’, market is taking that as hawkish and expect another hike in October.
BoE surprised the market by raising rates by 25 bp to 4.75%, the first increase in two years, as “the pace of economic activity has quickened in the past few months,” and inflation “likely to remain above target for some while”. Further guidance on UK monetary policy will be supplied via next Wednesday’s quarterly BoE inflation report.
In US, ISM non manufacturing index dropped further than expected to 54.8 in July, indicating slow down in growth. Jobless claims rose more than expected to 315k. But factory orders increased more than expected by 1.2% in Jun. Market focus will now shifted to tomorrow’s NFP.
GBP/USD
Daily Pivots: (S1) 1.8731; (P) 1.8762; (R1) 1.8794;
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Cable rose strongly after surprise rate hike from BOE, breaking above 100% projection of 1.8174 to 1.8597 from 1.8383 at 1.8806 and 1.8877 resistance. At this point, further rally is expected to follow towards 1.9024 cluster resistance (78.6% retracement of 1.9554 to 1.7047 at 1.9018). Touching of 1.8793 will turn short term outlook consolidative first.
In a bigger picture, with weekly MACD staying below signal line, we’re slightly favoring the case that corrective fall from 1.9024 is merely part of a larger consolidation to the whole rise from 1.7047 and therefore, a firm break above a firm break above 1.9024 is needed to confirm medium term rise from 1.7047 has resumed bring further rise towards 1.9554 high before completing the whole rise from 1.7047. Otherwise, more choppy consolidation is still likely to follow.
Read full report (EUR/USD, GBP/USD, USD/CHF, USD/JPY) here.
Shing-Ip Tsui (Shing) is the founder and CEO of www.ActionForex.com. ActionForex is set up with the aim to empower individual forex traders by providing insightful contents. Analysis reports, live pivot points on majors and crosses, etc are provided with collection of carefully selected educational articles and free trading ebook downloads.