In addition to the price action in EUR/GBP, GBP/CHF is a market to watch this week as the latest monetary policy statements from both the Bank of England and European Central Bank will likely get this market going.
Downtrend Bounce Ahead on GBP/CHF?
In our previous watchlist post covering EUR/GBP, we briefly touched upon the upcoming monetary policy decisions from both the BOE and ECB, and how neither is likely to make any policy moves this week. But that doesn’t mean GBP/CHF isn’t likely to see some action as recent developments like the fast spreading Omicron variant and the stubbornly high inflationary environment will likely draw out changes in outlook from one or both central banks.
At the moment, the Bank of England event is likely the main focus for this pair as what they may say is a bit murkier than the ECB. The United Kingdom just posted another round of very strong labor numbers as it battles a new wave of COVID-19 cases, making the case for a rate hike from the BOE a bit cloudier and the potential reaction in Sterling a bit stronger.
If the BOE gives the market guidance that rates will rise soon, or if it in fact raises interest rates at this meeting, Sterling may rally to take back the losses its seen over the past two months against the Swiss franc. And with the market consolidating between 1.2150 – 1.2300 over the past few weeks, a break above that area is one to watch for a potential bullish move to the upside.
Of course, if they hold off on any rate hikes and signal a cautious tone of the possibility of pushing rate hikes down the road due to the pandemic (a low probability scenario at this point), then it’s possible the trend lower in GBP/CHF may continue, especially if COVID-19 cases continue to post up record case numbers and a rise in hospitalizations.
In that scenario, any bounce to the falling trendline area or broken support-turned-resistance area (around 1.2300) may draw in trend players. Also look out for a downside break of the rising ‘lows’ pattern marked on the chart above as that could draw in trend players / momentum traders looking to scalp some pips to the previous swing low.
What do you all think? Will the trend lower stay intact or will the Bank of England give us a reason to turn that bearish market in GBP/CHF into a bull market? Let me know in the comments section below!
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