Bank of England may loosen monetary policy

Deputy Bank of England Governor Minouche Shafik said the British economy may need additional monetary stimulus. Will it weigh on British pound?

The decision to weaken monetary policy may be made already at the following Bank of England meeting on November 3, 2016. No specific measures have been outlined so far as they will depend on economic data. After the UK voted for leaving EU on referendum on June 23, 2016, the Bank of England cut base rate of 0.5% to 0.25%. This level is historical low. Rate was first cut in August since 2009. Moreover, Bank of England raised annual volume of monetary easing from 375bn to 435bn pounds. As we see, British regulator assumes these measures may be insufficient, so further rate cuts may take place and monetary stimulus may be expanded. In August year-on-year inflation was 0.6% in UK which is far above even the current base rate. In Q1 2016 the current account deficit was 32.6bn pounds. Trade balance has been consistently negative in UK since the 1980s. Now it exceeds -10bn pounds a month which is close to historical highs. This Friday the Gfk consumer confidence index for September will come out in UK, as well as final GDP and current account balance for Q2, we see the tentative outlook as neutral. Pound may depend on these data now.

GBPUSD

On the daily chart GBPUSD: D1 has slumped after the Brexit on June 23. After that it has been correcting within the rising channel and is near support line now. Looser monetary policy by the Bank of England may push British pound lower again.

The Parabolic gives bearish signals.
The Bollinger bands have contracted which means lower volatility and are tilted downward.
The RSI us below 50, but far from the oversold zone. No divergence.
The MACD gives bearish signals.

The bearish momentum may develop in case the British pound fall below the last fractal low and support of the rising trend at 1.29. This level may serve the point of entry. The initial stop-loss may be placed above the Parabolic signal and the last fractal high at 1.313. Having opened the pending order we shall move the stop to the next fractal high following the Parabolic and Bollinger signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. The most risk-averse traders may switch to the 4-hour chart after the trade and place there a stop-loss moving it in the direction of the trade. If the price meets the stop-loss level at 1.313 without reaching the order at 1.29, we recommend cancelling the position: the market sustains internal changes which were not taken into account.
Technical analysis summary

Position Sell
Sell stop below 1.29
Stop loss above 1.313