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Summary: The GBPUSD is rising with support from a softer US dollar following the Fed's interest rate decision and ahead of the Bank of England's interest rate decision. To continue its upward momentum today, the Bank of England must provide more hawkish policy information than expected, indicating a higher likelihood of further rate hikes.

Fundamentals

The Bank of England (BoE) is at a crucial juncture, with the policy interest rate expected to be held at 5.25% today, marking the second consecutive pause in tightening policy. This decision comes after the UK's September Consumer Price Index (CPI) stabilized at 6.7%, surpassing market expectations and indicating that the deflationary process has come to a halt. On the contrary, the current weak growth data highlight increasing recession risks, putting the BoE in a challenging policy dilemma.

Today's meeting aims to emphasize the existing divisions within the Monetary Policy Committee, consisting of nine members. The decision in September remained unchanged, with a tight 5-4 vote. Given the delicate economic situation, this balance shift, though unexpected, is still possible.

The BoE will also unveil new economic forecasts. Given a recent series of soft data, it is expected that the Bank will lower its short-term growth forecasts. However, in the long run, influenced by factors like interest rate cuts and pound depreciation, the Bank may raise growth forecasts for two and three years.

One of the prevailing discussions in the market is which major central bank will cut interest rates first. As it stands, the market consensus suggests that the BoE may lag behind the European Central Bank and the Federal Reserve. Current forecasts indicate a probability of the BoE cutting rates by no more than 50% before August 2024. However, if the central bank's upcoming forecasts reflect a significant downward revision in inflation prospects, this timeline and market sentiment may change.

Market-wise, three weeks ago, shortly after the BoE ended a streak of 14 consecutive rate hikes, the pound shifted from net long to net short. CFTC data shows that as of the week ending October 24th, net short positions on the pound had risen for the third consecutive week. If the pound fails to attract demand in December, the BoE may find itself in a dilemma, unsure whether to raise rates to support the pound. Hiking rates may help maintain downward pressure on UK inflation but could push the UK into a recession. It is expected that the BoE will maintain interest rates unchanged for the second consecutive time today.

Technical Analysis

While the GBPUSD pair didn't experience the expected significant decline after the Fed's interest rate decision, the bulls may still find support at a key level, and there's a possibility of further upside movement toward the 1.2250 range in the short term. However, downside risks still persist.

The GBPUSD is currently trading within a range and maintains a neutral bias during the session. Since the resistance level at 1.2336 remains intact, it is expected that a further move higher to the 1.2250 range will be followed by a downside breakthrough.

On the downside, if it falls below 1.2036, it will resume the overall downtrend that started from 1.3141, with support at the 1.1801 level. However, an upside breakthrough of 1.2336 will shift the bias back to the upside, with a target at the 38.2% Fibonacci retracement level of 1.2458, between 1.3141 and 1.2036.

From a broader perspective, the decline from the medium-term peak at 1.3141 may still be a correction in the upward trend from 1.0351 (the 2022 low). However, the risk of a complete trend reversal is increasing. Sustained movement below the 38.2% Fibonacci retracement level from 1.0351 to 1.3141 at 1.2075 will pave the way for a bearish test of 1.1417.

Overall, as long as the 55-day SMA (currently at 1.2346) holds, downside risks will persist. In terms of trading strategy, going short at highs is favored.

Trading Recommendations

Trading Direction: Short

Entry Price: 1.2250

Target Price: 1.1910

Stop Loss: 1.2350

Valid Until: 2023-11-16 23:55:00

Support: 1.2123, 1.2080, 1.2038, 1.2009

Resistance: 1.2200, 1.2242, 1.2271, 1.2289