Market volatility cooled this past week, but there have been just a few key events that had the potential to generate solid short-term opportunities, including two central bank policy events.
Out of six discussions, just one scenario/price outlook forecast saw each fundie & technical arguments triggered to turn into a possible candidate for a risk management overlay. Take a look at our review on that discussion to see what happened!
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On Wednesday, our strategists prepared for the upcoming monetary policy statement from the Bank of England, which might likely spark big volatility for the British pound this week.
In our Event Guide for the BOE Statement, we discussed how recent sticky inflation data within the U.K. supported the overall market consensus that the BOE would lean barely hawkish on their statement, and that it was expected the Monetary Policy Committee would likely vote 8-1 to carry the principal policy rate at 5.25%. For that scenario, we discussed a bullish setup on GBP/USD to observe.
But in case where the BOE got here out more dovish than expected, we focused on EUR/GBP. Given the strong uptrend for the reason that start of May and the euro’s recent out performance as Euro area data continues to indicate rising optimism and economic stability in recent months, we thought the a dovish end result may attract each fundamental and technical buyers into EUR/GBP.
Well, the Bank of England surprised the markets this week with a more dovish than expected event, signaled by a 7-2 vote to carry and comments from BOE Governor Bailey that signaled when cuts do occur, they could be “more substantial” than what markets currently expect.
This end result prompted a direct spike lower within the British pound, however the move was limited, possibly on “buy-the-rumor, sell-the-news” profit taking as Sterling saw pressure leading as much as the event. It’s also likely that traders were quick to cut back risk on Sterling after the event on condition that U.K. GDP was right across the corner on Friday to potentially influence GBP sentiment once more.
Speaking of the U.K. GDP event, that update got here in a lot better than expected because it essentially signaled the top of the U.K. recession. This prompted a bull rush into Sterling, not only further profit taking from the BOE event, but additionally likely a reversal of fresh shorts that the BOE Statement can have brought in.
EUR/GBP pulled back from the uptrend ahead of the BOE event, making a solid technical uptrend buying opportunity if a dovish scenario played out, and for many who went with the uptrend there ahead of the event, the percentages are likely of a positive end result with energetic risk management & profit taking ahead of U.K. GDP.
For many who waited for the BOE event results to take a bullish lean on EUR/GBP, odds are that you simply saw a rather negative end result, but that was highly relied on the danger management plan as EUR/GBP traded higher after the event, but then lower due to U.K. GDP updates.
Overall, we’d rate this discussion “not prone to neutral” in being supportive of a positive end result. Our asset selection and bias was generally right, but with one other top tier U.K. event following the BOE event, individual risk and trade management decisions would have been an enormous factor towards the ultimate end result.
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