BoE’s Bean Comments Suggest Increases in England’s Asset Purchase Program
Wed, 09/21/2011 - 7:48pm
BoE’s Bean Comments Suggest Increases in England’s Asset Purchase Program; GBP Breaks Support at 1.5780 Friday saw some jittery price action in the GBP after rumors circulated during the European session which suggested that the Bank of England might increase its QE asset purchase plan some time next month. A statement from the Deputy Governor of the BoE (Charles Bean) in a newspaper interview seemed to validate this view so markets will start to price-in a more dovish stance from the central bank in England. The GBP/USD did fall to lows of 1.5740 after the news but this was also due, in part to the significant sales seen in the EUR/USD which led to broader Dollar strength. Given this, the reaction in EUR/GBP was relatively muted, but eventually the cross moved lower as the Euro remains the biggest loser on the week. Friday’s trading activity created an inside day on the longer term charts, as ranges contract on lower volatility. The daily trend remains down however, and this is likely to continue as long as European bank stocks are vulnerable and the central bank in England continues to move away from its previous bias toward raising interest rates. The GBP/USD is likely to be influenced more by news headlines than by macro data so there is a high probability that volatility will remain high throughout the week. Key technical levels have already broken so at the moment there are very few supportive arguments for the GBP. Technicals: The recent selling in the GBP/USD has been extreme and prices closed at the lows after breaking key long term support at 1.5780. A bounce is possible, given the oversold indicator readings on the hourly and daily charts, however we need to see a break of resistance at 1.59 before the bias turns back to neutral. Support has moved down to 1.5705 and a break here will accelerate losses. The next support to the downside is seen much lower at 1.5340, so any further selling pressure will send a very ominous signal for the pair.