Forex Signal (Thu July 7 2011, 7:00am NY Time EST) – UK BOE Interest Rate

BOE (Bank of England) will be rendering its interest rate decision today, and it would provide strong volatility in the market if BOE’s final decision turns out to be a surprise, here’s the forecast:

7:00am (NY Time) UK Official Bank Rate Forecast 0.50% Previous 0.50%
APF (Asset Purchasing Facility) Forecast 200B Previous 200B
ACTION: GBP/USD BUY 0.75% (Rate) SELL 225B (APF)

The Trade Plan
In the extremely unlikely event BOE hikes rate to 0.75%, we’ll buy GBP/USD immediately on a spike trade. Because of the level of this surprise, I think we’ll see a strong trend change for GBP in the next few weeks, so we should BUY and keep a small portion for larger gains…

On the other hand, if we get a surprise increase in the APF or better known as quantitative easing, it would send a bearish signal to the market, and we should SELL GBP/USD immediately.

I’ll be trading this release using my Spike Trading Method, for more information read:
Henry Liu’s Trading Method

The Market
UK’s BOE, Bank of England’s Monetary Policy Committee (MPC) is once again scheduled to release their interest rate decision today and the expectations are to keep both their official bank rates at 0.50% and APF (Asset Purchasing Facility) of 200 Billion Pound unchanged, according to the wide majority of economists surveyed by Reuters and Bloomberg.

The important focus as usual will be the accompanying BOE Statement if they decide to release one, and it is customary for BOE to only release a rate statement if there is a change in either the Interest Rate or the APF.

With MPC caught between a rock and a hard place with respect to its rate policy, the general market is likely to keep GBP’s exchange rate in a tight range… Unless economic indicators start to improve drastically, there will be no speculation for rate hike of any kind anytime soon… especially with Broadbent replacing Andrew Sentance in the MPC, changing recent vote from 3 pro hike to 2.

Additional Thoughts
With BOE Gov. King keeping rates at 0.50% throughout the crisis, it could very well cost him his credibility if rates were raised unexpectedly today, especially in a time like this when the economy is struggling. It would be tough to justify that BOE decided to keep rates low while the economy was showing signs of recovery and raise rates when the economy is showing signs of deterioration and possibly falling back into double-dip recession… Therefore, I believe BOE will not act this year, 2011.

Pre-News Consideration
We might see some pre-selling of GBP… Especially following the comments from Moody for reviewing UK’s sovereign credit rating.

Historical Chart and Data for UK BOE Interest Rate Statement and Asset Purchase Facility

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