By: Christopher Lewis
The GBP/USD pair has been one of consolidation lately, as the central banks of both economies have been inordinately easy with their monetary policies. The pair generally will move higher with risk appetite, and as the stock markets have been rising, it makes sense that we have seen a move higher. However, the Monday session saw an attempt to break the pair down.
The recent action has been contained within the 1.60 and 1.5650 levels. This area has served as a great place to range trade this pair, and as such many traders probably have gotten a bit complacent. The Federal Reserve comes out with a FMOC statement later today, and this could have a sizeable effect on this pair as traders try to gauge who is easing, and who isn’t.
Ben and the Dollar
The Federal Reserve is anticipated as being easing going forward, and the market even fell hard a few sessions back as the Chairman of the Fed failed to mention anything about the possibility of “Quantitative Easing 3” during a Congressional meeting, and this scared the bulls of all risk assets. The Dollar got a boost, and if we see a lack of the possibility of QE3, we could see another run to the US dollar going forward, and in this fact – Mr. Ben Bernanke will be the biggest driver of this pair.
Going forward, looking at this chart I suspect the breaking down of the pair through the bottom of this consolidation range may have had a lot to do with a lack of volume in the marketplace. Although it is technically a signal, I am choosing to ignore it for the moment, and will focus on what the market does in relation to the candle itself. In other words, which side of the candle it breaks out of.
If we break out to the upside, I would expect the market to consolidate further, and reenter the previous consolidation range. However, if the pair breaks down and the Fed doesn’t mention any possibility of QE, this pair could fall hard, and I would be short. The 1.55 level below is going to offer some support, but the 1.53 level is the real target. Below there is air, and would signal a strong fall. I will base my trade off of the daily close, and not before.