The pound is rising ahead of the Bank of England interest rate decision. But analysts say that unless a 50 basis points rise is added, sterling could retrace lower.

The pound is rising ahead of the Bank of England interest rate decision and after 3 straight days of downfalls. Currently trading at around £1.2784 versus the dollar, with resistance along the upper trendline of the triangle sitting at £1.2794. A break and close above this trendline could see sterling climb higher back towards its 14-month high of £1.2848. However, analysts are predicting that a 25 basis point increase from BoE will not be enough for the pound to continue higher as it is believed the currency has come to a saturation point and is ‘overbought’. Therefore, the resistance point will be tough to overcome. Analysts suggest that unless a 50 basis point increase is implemented, sterling will test the support levels below. So looking towards the downside on the 4-hourly timeframe, we can support levels at £1.2738 then at £1.2713 and then at £1.2691 (along the ascending trendline). £1.2691 (also highlighted by the red oval) is the key support here, a move and close below it may see a retracement even lower towards £1.2626. Looking at the technical indicators, MACD is negative but the volume is lowering due to this morning’s rise and RSI has now turned positive as it reads 55. Though investors and traders should be wary once the decision is released, heavy volatility will occur and the course of direction is not guaranteed prior.