Bank of England May Face Recession


Bank of England tonight!

With Carney expected to cut the 0.5% rate to 0.25% in order to avoid what would be the first recession since March 2009, there are still plenty of questions left.

From the News Terminal:

Bank of England

With rates at record lows, how effective can monetary policy be? To help in this, further stimulus is being provided in the form of QE and the government is being persuaded to ramp up on spending on the fiscal side.

Now with QE already failing to kick-start the flailing, post-Brexit economy and the political dangers that come with rash spending in modern day politics, the effectiveness of stimulus is equally as questionable in today’s economic landscape.

Our Daily Market Update following the July BoE decision was of course overshadowed by the Nice Attack, but with expectations for a cut high, we had this to say following the on hold decision:

“So this decision all but means that markets know that next month is go for a cut, and if the market was short expecting a cut now, how can you possibly be bullish the pair going forward? Well, bar a change in rhetoric from the Fed which we clearly aren’t going to get.”

Comparing the chart in that post from one month ago and we see price moved barely 300 pips lower (a relatively nothing move over an entire month) before settling pretty much exactly back where we were following the on hold decision:

GBP/USD 4 hour

GBP/USD 4 hour

With Carney having made it profusely clear even before Brexit that the BoE would have to cut, the market had more than priced in this move months ago. The fact that price has held steady down here for so long is somewhat of a surprise, but following that 2000+ pip Brexit bloodbath, some sort of consolidation is the least we can expect.

The Brexit drop has wreaked havoc on the charts which makes the pair so much harder to trade. The levels on Cable just aren’t there at the moment and it’s making managing risk around today’s rate decision tough. The 0.25% cut is coming and priced in, but there is one more question to be asked.

What if the BoE goes all in and slashes rates down to 0.00% in one foul swoop?

This question is why there is still some meat on the bone for Cable shorts and why the contrarian long isn’t being pounced on. This would certainly be one juicy trade if the BoE delivered!

AUD/USD 15 Minute

AUD/USD 15 Minute

The Aussie continues to rally following the RBA interest rate cut but the easy trade continues to slip further away.

There are definitely safer, easier and potentially more profitable setups out there. You just have to look!

This Thursday

AUD Retail Sales m/m

GBP BOE Inflation Report

GBP MPC Official Bank Rate Votes

GBP Monetary Policy Summary

GBP Official Bank Rate

GBP BOE Gov Carney Speaks

USD Unemployment Claims

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This is a guest post originally appeared on Vantage FX. Reposted with permission.

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