The Pound to New Zealand Dollar exchange rate (GBP/NZD) has been trading sideways since the beginning of June, during which time it has been moving broadly within a range.

Highs are seen towards 1.80 and lows at 1.73. At the time of writing the exchange rate remains within the range, currently quoted at 1.7597.

Concerning the near-term technical outlook, our studies note momentum is showing a bias for more upside reflected in the fact that it has been converging with price action, see the bottom panel:

As we can see in the above the market is caught in a 'box pattern range' which broadly exhibits a period of consolidation or indecision between buyers and sellers as they take turns throwing punches but neither has taken over.

The theory goes that the market will “test” the support and resistance levels several times before eventually breaking out. From there, the price could trend in the direction of the breakout, whether it is to the upside or downside.

There is a strong possibility the exchange rate could move higher from here in the near-term, back up towards the range highs.

However, given the downtrend is dominant longer-term these are still early days for the nascent mini-uptrend we remain officially bearish. As such, any big break out of the range could be to the downside.

A break below the range lows would be required to invest new life into the downtrend and we would want to see a break below the 1.7300 level for confirmation, with the next target at 1.7200.

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Data for the New Zealand Dollar

A rise can support the Kiwi higher.

Another important release, also out on Tuesday, at 23.45 BST is Employment Change in Q2 which is forecast to rise by 0.7% from 1.2% previously.

The Unemployment Rate, released at the same time, is expected to show a contraction to 4.8% from 4.9% previously.

Data, Events to Watch for the Pound

The meeting, scheduled at 12.00 BST on Thursday, August 3 is not expected to result in a change of policy but the message from the Bank in the accompanying statement will be key.

Also note that the Bank is releasing its latest set of economic forecasts which presents markets with a good deal of material to focus on. As we note here, Sterling could well see volatile trade.

“There has been a lot of speculation that the BoE is about to change tack. But, for now, policy still seems set to remain on hold,” said Lloyds Commercial Banking’s, chief economist, Rhys Herbert, who forecasts a 6-2 split in favour of keeping interest rates unchanged.

Canadian investment bank TD Securities agree with the view that the BOE will vote 6-2 to stay on hold:

“While the BoE took a more hawkish stance in June with a 3 MPC members voting for a hike, we look for a 6-2 vote this time as the uber-hawk Forbes departs and most top-tier data has surprised to the downside since Haldane’s hawkish speech in June.”

However, BMO Capital reckon a 5-3 vote is more likely and in their opinion such an outcome would benefit Sterling. The argument forwarded by BMO Capital's Greg Anderson is that the Bank is keen to defend the value of the Pound in order to quell the recent rise in inflationary pressures.

Recent strong GDP data is probably not going to be enough to encourage a rate rise, despite coming out up by 0.3% on the previous month – against 0.2% forecast – and 1.7% higher on an annualized basis as this is still well below the rate of inflation which is circa 2.7%.

RBS’s chief economist notes how the dominant Services sector is holding overall growth up.

He adds that there are two schools of thought about this, with the first composed of optimists, for whom, “the strength of the service sector, representing 80% of the economy, shows the underlying resilience of growth with services now 2.3% bigger than a year ago,” whilst pessimists argue that the, “falls in production output are being masked by a short-lived expansion of services that’s doomed to fall victim to the real income squeeze.”

The other major releases for the Pound in the week ahead are Manufacturing, Construction and Services PMI’s released on Tuesday, Wednesday and Thursday respectively, all at 9.00.

PMI’s are currently broadly range bound around the 53-4 level for all three sectors and they are expected to remain around those levels.

Services is forecast to rise by a mere basis point to 53.5, Manufacturing to stay at 54.3 and Construction to dip to 54.0 from 54.8.

Any result over 50 is indicative of expansion, whilst anything below 50 shows overall contraction of the sector.