The British pound rolled over on Wednesday as we touched the 200-day EMA early in the session, only to give up those gains and form a rather ugly candlestick. Because of this, it is likely that a lot of traders are nervous about the CPI numbers coming out the United States, as it gives us an idea as to whether or not the Federal Reserve will have to become even more aggressive when it comes to rate hikes. After all, if the inflationary numbers do in fact come out hotter than anticipated, it very well could send more money flowing into the US dollar, as it would be extraordinarily bullish for rates going higher. On the other hand, if the number is relatively lower than anticipated, then we could see the US dollar get hammered.
Furthermore, when you look at this chart, you can see that we are dancing around between the 50 day EMA underneath and the 200 day EMA above. By forming a shooting star, this does suggest negativity, but there is so much support near the 50 day EMA and the 1.35 handle underneath. In other words, I think we are going to go back and forth until we get through that CPI figure, because it is so important to understand what we are going to expect from the Federal Reserve.
I think we will continue to see a lot of difficult trading, because the Bank of England of course has gotten a bit more hawkish than originally thought, but at the end of the day the question is whether or not they are as hawkish as the Fed? I believe that the CPI figure will be the next major signal as to whether or not that is going to be the case, and I think that by the time we close on Thursday, we could have an idea as to where we are going for a bigger move.
You should probably keep your position size small until we get that daily close that finally break out of this little consolidation area, as anything other than that is simply gambling. We have to take into account how people may or may not act. Guessing as to what they are going to do is very dangerous indeed.
