Sterling could come under increased pressure on BoE’s dovish turn
Cable edged higher in early Thursday’s trading on fresh risk mode in the markets, but the action requires more work at the upside to neutralize downside risk.
Wednesday’s close below 10DMA (1.2880) which held the action in past four days and probe below 20DMA (1.2856) was negative signal for repeated attack at pivotal Fibo support at 1.2819 (23.6% of 1.2195/1.3012) where downside attempts in late Oct were repeatedly rejected.
Rising bearish momentum on daily chart keeps near-term action in negative mode ahead of key event today – BoE interest rate decision.
The central bank is expected to keep interest rate unchanged and forecasts for previous meeting’s minutes show unanimous vote to keep rates unchanged and no economic growth downgrade that could be supportive for sterling.
However, caution is required as uncertainties over Brexit and UK election could result in dovish turn in the outlook and have negative impact on pound.
Initial bearish signal could be expected on firm break below 1.2819 and 1.2788 pivots (Fibo 23.6% / 24 Oct low) which would expose key supports at 1.2705/00 (200DMA / Fibo 38.2% of 1.2195/1.3012), violation of which would generate reversal signal.
Conversely, close above 10DMA would sideline downside risk and shift near-term focus higher.
Res: 1.2880; 1.2917; 1.2975; 1.3000
Sup: 1.2837; 1.2819; 1.2788; 1.2705