The Bank of England surprised investors with a hawkish twist yesterday and warned that rate hikes may be faster and larger than originally anticipated. This hawkish tone caught the market by surprise and led to high volatility and a short squeeze in GBP/USD. While sterling bulls were able to benefit from the rapid surge to a high of 1.4067, the upward move turned out to be only short-lived and traders had to be quick to take the profit.
To sum it up, the BoE lifted its forecasts for economic growth and said interest rates may need to rise at a steeper pace than previously thought. BoE policymakers now see three rate hikes over the course of three years while the market is now pricing in a 70 percent chance of a rate increase in May, up from nearly 50 percent yesterday.
While the BoE’s hawkishness should pave the way for further gains in the pound, it were high volatility and ongoing Brexit uncertainty that prevented the currency from rising further against the U.S. dollar.
We were able to book a good profit yesterday by trading our daily long signal.
The euro ended the day unchanged against the greenback after it dropped to a low of 1.2212. For euro bears, however, the downward move has proved insufficient to provide a sustained profit. Prices in the EUR/USD narrowed, suggesting that we may see some upcoming breakout of that tight range. If the euro climbs above 1.2265 we may get another test and potential break of 1.2295. A higher target could then be at 1.2330. If the euro, however, falls below 1.2240 it could further decline towards 1.22. A lower target could then be at 1.2150.
There are no major economic reports scheduled for release today. U.K. Manufacturing Production is the only second-tier report scheduled for release at 9:30 UTC.
Have a nice weekend.
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