GBPUSD Upward Trending Equidistant Channel: 2-hour chart
It was widely anticipated that the Bank of England would be the first Central Bank of the major 7 currencies to raise interest rates amidst the ongoing global currency war. The robust expansion in the U.K. economy and soaring property market made higher interest rates a real possibility until the latest fight with deflation encountered by the European Central Bank. The prospect of importing deflation is preventing BoE Governor Mark Carney and the Monetary Policy Committee from taking interest rates higher. U.S Federal Reserve Chairman Janet Yellen echoed similar sentiment during her testimony before Congress whilst pushing back her own rate hike timeline. BoE policymakers are expected to leave interest rates on hold this week at 0.50% as they await more data confirming a broader economic expansion. Manufacturing, construction, and services PMI data due this week could be the spark that GBP momentum to the upside. Speeches from both Central Bankers this week should further highlight the inflation and employment outlooks for their respective economies.
Since peaking in July, GBPUSD has steadily trended lower as investors were more confident in the American recovery and the prospect of the Federal Reserve concluding with quantitative easing as a precursor to higher interest rates. After bottoming in January, prices have managed to retrace some of the downside, rising over 600 pips from lows before pulling back modestly. The extended timeline offered by Janet Yellen for raising interest rates will certain sap some recent dollar strength as investors prepare for the unemployment number at the end of the week. In the meantime, GBPUSD continues to strengthen, trending within an upward trending equidistant channel over the last three weeks. The main strategy is to follow the trend higher, focusing on initiating long positions at the lower channel line and closing positions at the top of the channel. Short positions in an upward trending channel are not suggested due to the worsening reward characteristics and higher risks.
