Will BOE help Sterling break out of downtrend?

<p><strong>By <a href="http://investmacro.com/contributors/contributor-profile-forextime/">ForexTime</a> </strong></p>
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<ul>
<li>Bank of England unlikely to change benchmark rate today</li>
<li>“Hawkish hold” could keep Sterling supported, though still stuck in downtrend</li>
<li>GBPUSD bulls must first conquer 21-day SMA resistance</li>
<li>1.2130 region offering support since late-September</li>
<li>GBPUSD likeliest to trade within 1.2025 – 1.2304 range over one week</li>
</ul>
<h3></h3>
<h3>The Bank of England is expected to keep rates at 5.25% today.</h3>
<p>This is in tune with current market pricing, with only a <strong>29% chance of another hike by February.</strong></p>
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<h3><em>Further hikes may be needed if the bank gets more evidence of persistent inflation.</em></h3>
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<p>Other data since the last BOE meeting has been broadly soft with weak GDP and PMIs in September and October stuck in contractionary territory so signalling a <strong>gloomy growth outlook</strong>.</p>
<p>This implies the <strong>bar is relatively high now for another rate hike</strong>, especially due to the slightly surprising unchanged decision at the September meeting.</p>
<p>Updated economic projections and the press conference may allow policymakers to show their hand.</p>
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<h3><em>Higher inflation forecasts, with the 2% target being hit halfway through 2025, might imply rates need to stay higher for longer.</em></h3>
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<p>However, BOE Governor Bailey may stress the lagged effects of this tightening cycle, with higher mortgage rates still to hit many households.</p>
<p>Market rate expectations are noticeably lower after the summer’s repricing with the<strong> first rate cut </strong>fully priced in by <strong>September 2024.</strong></p>
<p>How much caution there is towards the poor outlook compared to the potential re-emergence of upside risks to inflation will be key.</p>
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<h3><em>A “hawkish hold” should see GBP relatively well supported as it battles to break out of its long-term downtrend.</em></h3>
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<p>&nbsp;</p>
<h3>From a technical perspective …</h3>
<p>A <strong>bear channel</strong>, with a series of lower highs and lower lows, has been in place since the mid-July top above 1.31.</p>
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<h3><em>For immediate consideration, GBPUSD bulls (those hoping prices will move higher) must first secure a daily close above its <strong>21-day simple moving average</strong> (SMA).</em></h3>
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<p>&nbsp;</p>
<p><strong>Further resistance</strong> northwards may arrive at:</p>
<ul>
<li><strong>1.220</strong>: upper boundary of its bear channel</li>
<li><strong>1.22889:</strong> intraday high on October 24th</li>
<li><strong>1.2300:</strong> psychologically-important level, close to 50 Fibonacci level from GBPUSD’s June 2021 – September 2022 peak-to-trough action</li>
</ul>
<p>&nbsp;</p>
<p><strong>Looking the other way</strong>, the <strong>1.2130 region</strong> should offer strong <strong>support</strong>, as has largely been the case over the past five weeks.</p>
<p><strong>Ultimate immediate-term support</strong> may arrive around the recent cycle low in early October which sits at <strong>1.20372.</strong></p>
<p>&nbsp;</p>
<p>The support and resistance levels listed above fits nicely with the forecasted trading range, as per <strong>Bloomberg’s FX model,</strong> which cites a …</p>
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<h3><em>74% chance that GBPUSD will trade within the 1.2025 – 1.2304 range over the next one-week period.</em></h3>
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