24.04.201803:54 Forex Analysis & Reviews: The pound fell from a cliff

Who flies high - painfully falls. On April, the pound sterling reached the highest mark since the referendum on the membership of Britain in the EU, it fell down after the "dovish" comments of Mark Carney. The head of the Bank of England said that the markets overestimate the chances of raising the repo rate in May, and the Monetary Policy Committee has other meetings on which a decision on monetary credit tightening may be made. As a result, the probability of continuing the normalization cycle at a meeting on May 10 with 82% fell to 56%, which sent fans of the sterling to a knockdown.

The dynamics of the probability of raising the repo rate

With his speech, Mark Carney made it clear that the future actions of the MPC will depend on macroeconomic statistics. It recently left much to be desired. The inability of average wages to accelerate to 3% has been replaced by a slowdown to 2.5% in inflation and disappointing data on retail sales (+1.1% vs. +2% in March). Yes, the Bank of England is well aware of what Brexit will do to the UK and should take advantage of the interim period granted to move the repo rate as high as possible. Otherwise, it will not have the tools necessary for helping the economy. However, to tighten monetary policy under conditions of sluggish GDP is similar to death. This will increase the risks of a recession, so BoE must think three times before making an important decision.

It seems that this opinion is not only shared by Mark Carney. A member of the MPC Mark Saunders also said that raising rates should be gradual, not quick. The change in the rhetoric of the Bank of England from the "hawk" to the "dove", coupled with disappointing statistics on the labor market, inflation and retail sales, made a pounding for the boy. However, the "bulls" are not in a hurry to throw out the white flag. ING, Nomura, Credit Agricole, CBA Europe, MUFG and Canadian Imperial Bank all agree that the BoE will take a decision on monetary tightening in May. If the markets believe them, the GBP/USD will begin a gradual recovery of the positions it lost.

Such a sweeping collapse of the pound would not have happened, if not for the excessive euphoria of its fans the previous day. Hedge funds and other speculators by the end of the week, by April 17, increased their net long-term deposits to $3.8 billion, the highest peak in almost 4 years.

The key event of the five-day period by April 27 for the pound is the release of data on the GDP of the UK for January-March. Bloomberg analysts expect to see a slowdown in the quarterly rate from 0.4% to 0.3%. Annual GDP will remain at the same level of +1.4%. Weak statistics will finally discourage investors from raising the repo rate in May and will help continue the high of GBP/USD.

Technically, the activation of the "Shark" pattern will increase the risk of falling quotations of the analyzed pair below 1.38. Nevertheless, while the sterling is trading above $1.37 (point 5 of the "Broadening wedge" pattern), the situation continues to control the "bulls".