GBP/USD (a 4-hour chart)
The retail price index (BRC) has grown to 1.1% in February from 0.6% in January.
Yesterday Mervyn King, the head of the England Bank emphasized the role of inflation and interest rates. King also added that it is impossible to keep the rates unchanged forever the rates should be set taking into consideration the strategy of inflationary pressures.
Mervyn King spoke the day before the decision on interest rates and the asset purchase program. Todays’ news can provoke a strong reaction of the market.
Besides that the votes are divided in respect of 3-6 at the February meeting. Mervyn King has joined those who support the policy of strengthening mitigation.
Stimulating activities may affect the pound. On the daily chart the price bounced from the support line which is located at the level 1.4950.
If the February minimum is refreshed we can expect a fall to the level 1.4900. After this the falling may continue. This scenario is possible if the scale of quantitative easing is increased.
As for the technical correction, we can expect a return to the level of the pound center line downstream - in the 1.5300/65 area. With well-established resistance at 1.53 bears have an excellent prospect of building short positions.