British pound consolidates after rate decision

The trend in the British pound is higher, as slightly better than expected economic news recently has kept the Bank of England off the accelerator as witness on Wednesday when the central bank met to decide the state of current interest rates. Interest rate differentials continue to favor pound futures, which also assisted in keeping sterling buoyed.

Prior to the BoE releasing its decision on interest rates, the U.K. reported a 0.7% increase in March industrial production, which happened to be above the 0.2% estimate forecasts by analysts. The positive release enhances February's 0.9% increase. Manufacturing growth, which is a sub-component, was the bulk of the increase climbing 1.1% compared to the .3% expected.

The Bank of England finished their two day meeting on Thursday and decided to keep their benchmark interest rate unchanged. The BoE stated that they would not add to their current gilt purchase program.

The banks decision was solidified by the hawks that outnumber doves on the MPC. Current Governor King, who served over his second to last meeting, continues to be an advocate of additional accommodative measures. His replacement, Carney, currently heads Canada's central bank, and will take over as the head of the BoE after Carney resides over his last meeting.

Click to enlarge.                                                                                Chart courtesy of ForexBonus.

Sterling futures since the beginning of May have been caught in a tight range, which seems to be indicative of the path of the rebound since mid-March. The CME Pound futures contract has rebounded 50% of the decline that began in January and ended in mid-March. The retracement is a Fibonacci level, and the market could continue to move higher testing the 61.8% retracement of the move, which would target 1.5700.

Historically, volatility, as reflected by the Bollinger band width, is toward the middle of the range between the highs in March and the lows in mid-April. The Bollinger band width is calculated by subtracting the Bollinger band high (2-standard deviations above the 20-day moving average) from the Bollinger band low (2-standard deviations below the 20-day moving average), which gauges the change in standard deviations.

Momentum, as reflected by the MACD (moving average convergence divergence) index, has been sapped. The MACD index level is hovering near the zero range which reflects the short term consolidation in the British Pound futures contract.

The RSI (relative strength index), which gauges overbought and oversold levels, is printing near 57, which is in the upper end of the neutral range, but the trajectory of the index is lower after failing to break through the recent highs near 70, which topped out on the first trading day of May.

About the Author

Marcus Holland is an editor at FinancialTrading.com, a guide to online trading that offers news, education and analysis of different financial instruments.

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