- The British pound rallied as shifting expectations for Federal Reserve policy drive most currency action at the moment.
- Holiday-thinned U.S. trading is likely to amplify volatility, with GBP/USD facing key resistance near 1.32 while broader sentiment remains cautious.
The British pound rallied on Tuesday as we continue to see traders go back and forth with their expectations on what the Federal Reserve may or may not do. The latest movement has been based on the idea that the Federal Reserve is going to cut to the bone again. And really, at this point, I think the entirety of the currency markets is focusing on the Federal Reserve and probably not much more than that.
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This is going to lead to even more volatility, but this week is going to be especially dangerous as the Americans are going to be away for Thanksgiving. Thanksgiving is on Thursday, and most Americans not only will be away from their desk on Thursday but will probably be away from their desk on Friday anyway.
Volatility Risks and Dollar Reaction
So, with that being said, I would expect a radical and nonsensical movement at times with the retail sales figures coming out a little softer than anticipated during the trading session. We've seen the US dollar take it on the chin, but ironically, a weak US consumer might actually have people running back toward the US dollar eventually, at least for some type of safety.
The British pound is going to remain soft in relation to other currencies as the Bank of England came dangerously close to cutting interest rates last time. And I think that's something that people will still focus on. With that being the case, I think signs of exhaustion will probably get sold into. But again, this week is going to be thin from a volume standpoint, and that's something that you need to pay close attention to.
The 1.32 level is an area that I think a lot of people will be watching, as it is an area that has seen both support and resistance and is the top of the current range that we are in. The 50-day EMA is doing everything it can to cross below the 200-day EMA, kicking off the so-called death cross, which is a longer-term selling signal, but not necessarily one that I find overly reliable. So with that being the case, I'm watching the 1.32 level very closely for signs of exhaustion.
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