- The GBP/USD has rallied significantly during the session on Wednesday, to break above the psychologically important 1.20 level.
- We are now looking at the 200-Day EMA just above, and it will have a certain amount of influence on the market.
- Beyond that, we also need to pay attention to the fact that the FOMC Meeting Minutes come out late during the day on Wednesday, which could completely turn this thing around.
- The US economic numbers started to show contraction in the Flash Services PMI figure and the Flash Manufacturing PMI figure during the session, suggesting that perhaps the Federal Reserve is finally starting to make inroads into the inflation fight.
If we do break above the 200-Day EMA, that could lead to even further strengthening in the British pound, as the US dollar will obviously be under pressure. With that being the case, we could see a move to the 1.25 level, but obviously, there are a lot of things to consider between now and then. One of the biggest issues will be the fact that it will be Thanksgiving in the United States, and therefore you will have to worry about liquidity. In fact, the reaction to the PMI announcements might be somewhat exacerbated by that lack of liquidity.
Position Sizing and Money Management Are Crucial
Either way, we are still in an area that could cause some issues in both directions, so a little bit of patience probably goes a long way at this point. Furthermore, it’ll be interesting to see things play out early next week when traders come back with a bit more volume. Nonetheless, we are on the precipice of making a rather significant breakout, so if we get a little bit more momentum, things can get interesting and in short order.
More likely than not, this is a scenario where you will see choppy moves regardless of the direction, so you should keep that in the back of your mind as well. I would not put too much into any one trade, because quite frankly we could see very violent moves in this type of environment. Because of this, position sizing and money management will be crucial over the next several sessions, not only in this pair but multiple other ones as well. With this, caution is the better part of valor.
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