The US, UK and Japanese central banks are in the spotlight on Wednesday with testimony, meeting minutes and interest rate decisions on the docket. The Bank of Japan finished its two day interest rate meeting, discussing the merits of its quantitative easing program. The meeting minutes from the Bank of England showed little surprise, with a result that kept future Gilt purchases in check.
Federal Reserve Chairman Ben Bernanke is scheduled to testify in front of congress for his by-annual Humphrey Hawkins testimony. He is expected to discuss that the Federal Reserve has made progress on its thinking of the QE-exit strategy, and how the central bank will wind down bond purchases without disrupting market conditions. The Fed Chairman will likely reiterate that there is no imminent tapering off of purchases of long-term assets and that the decision is dependent on the trajectory of prices and the labor market.
The Bank of Japan meeting finished its two day meeting as expected. Although there were no changes in policy, the central bank upgraded its assessment of the economy. The BOJ pointed to the stabilization of exports, increased capital spending and stronger housing investment. Governors are still concerned about the quick rise in bond yields, but did not discuss specific moves that would alleviate this issue.
Minutes from the Bank of England’s interest rate decision showed a vote of 6-3 in terms of new gilt purchases. The hawkish stance was not enough to prop up the pound which was under pressure after the release of a disappointing April retail sales report. The 1.3% decline in April, the biggest in a year, compared to an estimate of a 0.1% increase.
The negative price action of the pound is pushing the currency pair toward support levels near the 1.5030 level. A close below this target would likely generate enough negative momentum to test the 1.4830 lows seen in early March. Resistance on the GBP/USD currency pair is seen near the 10-day moving average near 1.5250.
Negative momentum on the pound continues to perpetuate with the MACD generating a sell signal in early May. This occurs when the spread, defined as the 12-day moving average minus the 26-day moving average crosses below the 9-day moving average of the spread. The MACD index is printing in negative territory and has a negative trajectory. The RSI (relative strength index) which is an oscillator that measures overbought and oversold levels is printing near 37 which is on the low end of the neutral range.