- Traders need to be careful this coming week. Now that this message has been delivered, speculators need to understand the GBP/USD will produce dynamic results.
- The U.S Federal Reserve is set to deliver their FOMC Statement and announce their Federal Funds Rate this coming Wednesday.
- The U.S central bank will cut interest rates this Wednesday. The GBP/USD has gone into this weekend having nudged higher compared to the start of last week.
- But the question everyone wants answered is, what will the Fed’s message be? The 1.35575 mark was achieved going into this weekend and folks who believe the GBP/USD must move higher in the coming days based on the Fed’s upcoming interest rate cut cannot be blamed.
- But this doesn’t mean they are correct. The Fed will likely cut their Federal Funds Rate by 25 basis points.
Fed Noise and Interpretations for the GBP/USD
While some clamor for a more aggressive cut of 50 basis points, this is unlikely to happen because the Fed led by Chairman Jerome Powell is not exactly an institution known for throwing caution to the wind. In other words Powell will likely cut the interest rate on Wednesday and suggest another cut will take place in late October. Will that be enough to spur on more buying of the GBP/USD? It may not be, financial institutions have already factored the 25 basis point cut that is coming into Forex. Unless there is a clear and strong message that the Fed will cut again in October, the GBP/USD may continue to flirt with higher terrain and then be pushed backwards. Since July of this year the GBP/USD has fought higher and then faced headwinds, like the EUR/USD.
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Visions of the GBP/USD above the 1.36000 level have likely been dreamed about by bullish speculators. However sustaining highs in the GBP/USD has been hard to produce. The lack of backbone the Federal Reserve has shown the past few months has led to a rather technically challenging Forex market. Financial institutions will want to see the Fed has the ability to show they can be aggressive. But the Fed might not be willing to do this because many of the FOMC members remain concerned about inflation.
Support Levels as Potential Lynchpins in the GBP/USD
Remember, day traders have been advised to be careful above. Trading from tomorrow into Wednesday may see larger institutions positioning ahead of the Fed announcement, meaning that higher price action in the GBP/USD may be seen.
- But depending on what comes out of the mouth of Jerome Powell on Wednesday, a confirmation of aggressive interest rates to come or rather lukewarm caution may be heard.
- Yet, it is possible the Fed will aim for the middle ground, and this is what speculators should suspect will happen until proven otherwise.
- Meaning nervous large institutions may sell the GBP/USD when technical highs have been attained and then support levels will have to be interpreted as a possible place to buy the GBP/USD and look for quick hitting momentum by day traders.
- Certainly, leading up to Wednesday, speculators should not feel a long-term obligation to their trading positions, meaning holding positions going into the Fed’s FOMC Statement may prove very dangerous.
GBP/USD Weekly Outlook:
Speculative price range for GBP/USD is 1.35090 to 1.37500
This will be a dynamic week in Forex. The GBP/USD will not be immune to volatility. The currency pair will be fast and day traders need to practice supreme risk management so they are not burned by the speed of Forex. Having challenged highs last week around 1.35920 on Tuesday was good bullish action, but the selling that ensued afterwards is a warning sign that caution remains a fixture in financial institutions.
As a note the GBP/USD did attain the 1.37900 vicinity on the 1st of July. Bullish traders may be dreaming of this higher values, but day traders with limited funds should be willing to cash out of big moves if profits are produced. The Federal Reserve hold the cards in the Forex market this week, the GBP/USD will react to the FOMC Policy Statement and everyone should be braced for fast conditions.
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