Forex News and Technical Update

The Bank of England released its Inflation Report today (8/8), and bank Governor Mervyn King spoke. The economy has been in a recession with the 3rd straight quarter of negative growth in Q2. The BoE's forecast has been scaled back from a 2.5% annual GDP growth to 2.0%. However, as reported by bloomberg.com, King said that a rate cut would be more damaging than good. This immediately gave the Sterling strength across the board.

GBP/USD 4H Chart 8/8/2012 7:13AM EDT

GBP/USD 8/8/2012 4H chart

Previous: GBP/USD Breaks Above Triangle Resistance (8/7)

The GBP/USD was in a throwback throughout the end of 8/7 US session into the 8/8 Asian-European session. The bullish breakout was not confirmed. However, governor King's statement against rate cuts kept it from the 8/7 low, and is now pushing it toward the 8/7 high at 1.5682.

This pair remains choppy and is in a sideways market in the medium term. It would be interesting to see if the fuel can bring the pair to its consolidation resistance at 1.5725 and 1.5775. There, we should consider resistance at least in the near-term.

EUR/GBP 4H Chart 8/8/2012 7:15AM EDT

EUR/GBP 8/8/2012 4H chart

Previous: EUR/GBP Trading in a Major Correction Rally? (8/6)

The EUR/GBP is "plunging" with very sharp bearish price action immediately after the BoE Inflation Report and statement by the gov. King. The ability to push below 0.7905/0.79 makes the bullish outlook in this pair cloudy since all the waves are overlapping, showing choppiness and suggesting more of a corrective structure for the rally since the July 23 low at 0.7756.

If the current bearish attempt is to remain within the corrective phase, then it should either respect a rising trendline at 0.7870, or 0.7835, the 61.8% retracement level and slower trendline. The RSI in the 4H chart should also remain mostly above 40 if the bullish momentum is to continue. A break below 0.7830 exposes the 0.7756 low, as well as a bearish continuation scenario toward 0.77, which is the 2008 consolidation low.

Fan Yang CMT is a trader, educator and a Chief Technical Strategist for FXTimes - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.

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