18.06.201822:01 Forex Analysis & Reviews: The pound is getting ready for "hawkish" hunting

The British pound has fairly persevered with the Fed's "hawkish" rhetoric, improved forecasts for major macroeconomic indicators and its readiness to raise the federal funds rate four times in 2018, but fell into a powerful wave of sales after the ECB meeting. It seems that investors decided to wait for the speech of Mario Draghi before buying a good looking US dollar. The reference of the European Central Bank to keep rates at current levels until September 2019 dropped from the chain of "bears" to EUR / USD, which immediately affected the GBP / USD. Sterling went to the 7-month low against the US currency and looks forward to the meeting of the Bank of England Monetary Policy Committee on June 21.

At first glance, almost 2% of the euro sagging seems excessive. The ECB reported the completion of QE and indicated its intention to raise rates. He follows the path of the Fed, which did the same in 2014 a year before the start of the cycle of normalizing monetary policy. And in general, the US dollar cannot be as strong as a half or two years ago due to convergence. Bank of Canada raises rates, the ECB completes the quantitative easing program, the Bank of England is thinking over the continuation of the normalization cycle.

Currently, the derivatives market issues a 50% chance of raising the REPO rate in August. For GBP / USD, it is prudent, will BoE increase these chances with its rhetoric or, conversely, will reduce. Strong statistics on employment and retail sales testify to the implementation of the first scenario, the slowdown of inflation and average wages require the regulator to remain patient. The 8% decline in the GBP / USD since mid-April is an inflationary factor, as, indeed, the "bullish" oil market conditions. Therefore, the slowing of inflation from 3% at the beginning of the year to May 2.4% can be interpreted as a normal correction to an uptrend. To prevent its recovery, the Bank of England, you either need to raise your bid or mark "hawkish" rhetoric.

Dynamics of British inflation and repurchase rates

The first option looks preferable against the background of the slowdown of the economy of the Misty Albion to 0.1% q / q in January-March and signals about its recovery in the second quarter from the indexes of purchasing managers. Why shut off oxygen on the feet of GDP? It is better to state that the weak start in 2018 was due to bad weather. Thus, moderate optimism about the prospects for the British economy and hints on raising the repo rate in the future can support the bulls for GBP / USD. Nevertheless, it will be very difficult for them to reverse the current short-term downtrend due to the strong positions of the US dollar. US GDP, according to the Federal Reserve Bank of Atlanta, is ready to accelerate to 4.8% q / q in April-June, the Fed will double rates again in 2018 and three times in 2019.

Technically, the pattern "Expanding wedge" worked well. Rollback to the level of 23.6% allowed to form short positions. Renewal of the May lows activates the maternal and child patterns AB = CDs with targets by 161.8% and 261.8%.

GBP / USD, the daily chart