With the latest monetary policy decision ahead from the Bank of England, we’re checking out this textbook channel on GBP/NZD for potential setups for both bulls and bears.
Channel Break or Bounce in GBP/NZD?
Thursday could be a big day for Sterling traders as the latest monetary policy statement is coming from the Bank of England, as well as updates to the BOE’s inflation forecast. Expectations are that the BOE will hold off on policy changes at this week’s meeting, but likely upgrade its inflation forecast from 2.5% to 3.5%. This may lead to a bullish reaction in Sterling in the short-term, especially if we see more members of the BOE vote for an early end to quantitative easing measures.
A potential bullish move could be played in GBP/NZD, which recently saw the market drop on very positive New Zealand jobs data released during today’s Asia trading session. That brought the pair to the bottom of the rising channel highlighted in the chart above, which may attract price action traders looking to play the uptrend at better prices.
And ICYMI, there is also a bullish setup on GBP/AUD that we highlighted early in the week for bullish Sterling traders to check out as well if you think the positive NZ jobs data may limit the potential for a short-term rally in GBP/NZD.
Now, with pandemic concerns on the rise as cases spiked higher in July, this opens up the possibility of the BOE to lean a little dovish in their outlook in tomorrow’s statement. If we see their fourth quarter growth outlook pulled back back to 1.5% or below, and/or a peak 2021 CPI read below their earlier expectations of 2.5%, then British pound bears may show up very quickly after the event.
If this scenario plays out, then a break below the rising ‘lows’ marked on the chart above may be the price action signal that not only draws in fundamental bears on GBP/NZD, but also technical ones who see not only the support break, but also the bearish divergence between price and stochastic at a major psychological level marked on the chart above.
Combined with the bullish employment from New Zealand today that’s already sparking rate hike speculation from banks, a downside break could possibly be the start of a longer-term move to the downside. We’ll be watching out for this scenario for a potential short position for now, with a tight stop above the channel and a longer-term target around 2021 lows for a solid potential return-on-risk. Also, any bounce back up to the 1.9900 – 2.0000 resistance area is one to watch for bearish reversal patterns.
What do you all think? Is this a buying opportunity to play the uptrend in GBP/NZD? Or is the market set to turn bearish over the next few months. Let me know in the comments section below!
