BoE signals tapering and rate hikes
The pound is higher on the day after the Bank of England laid out plans for reversing emergency stimulus measures and raising rates. But it hasn’t really changed much as far as the charts are concerned.
Price action continues to push against the key fib levels, as well as the 55/89 daily SMA band, but is there any indication that we’re about to witness a breakout moment?
I’m not overly inspired by the action on the lower timeframes. The 4-hour chart isn’t particularly bullish and in fact, the long upper wicks on the last two candles is arguably a bearish signal.
The hour chart shows the rally building throughout the day, since finding support around the 200/233 SMA band, which could be viewed as bullish.
But a look at the momentum indicators – MACD and stochastic – don’t fill me with hope. While price has been building throughout the day, momentum has not. In fact, the stochastic displays a clear divergence.
While divergences aren’t bearish indicators, per say, coming around key resistance on the daily chart does strike me as a big red flag. Especially after the BoE has just offered improved forecasts for growth and unemployment, while laying out a plan for reducing asset purchases and raising rates.
That isn’t to say we won’t see price break above 1.40. But it does make me wonder whether it has the legs to do it on this occasion.
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