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BoE raised rates yesterday by 50bp as expected, but speculators look towards the end of the hiking cycle due to recession risk which was highlighted by BoE’s Tenreyro & Dhingra. They said that 3% bank rate is more than enough to bring CPI back to target. In fact, Dhingra warned of a deeper longer recession with higher rates already before. As such, it’s not a surprise to see the pound weakening since yesterday. Notice that the price fell below the wedge, likely stepping into a corrective phase. 1.19-2.0 is support. We talked about this technical reaction a few days before the market turned as you can see on our screenshot of Elliott wave analysis below.
The question is where we go from here? Well, we try to focus on a minimum expectation which in our case is a three-wave drop, ideally wave four. Stocks are already weakening and if this will be the case in the next few sessions we think that pound can very easily make an A-B-C pattern to the south.
Updated analysis
Broken wedge suggests that temporary top is in and that market is making a three wave decline.
Elliott wave analysis GBP/USD
Past Elliott Wave expectations
When you see a wedge formation at the end of an extended leg, then you should be aware of a change in trend, especially ahead of important events such as was BoE rate decision this week
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