The British pound is treading water against the US dollar currency as the pair struggles to find a new direction on the foreign exchange market. Sterling traders appear to be in wait-and-see mode ahead of this week’s very important FOMC policy meeting.
Market commentators are speculating that if the Federal Reserve fails to acknowledge the rising rate of United States inflation, then a major move in the US dollar and commodities is likely to take place this week.
If this scenario comes to pass then most analysts are in agreement that the US dollar should sell-off and the price of gold is expected to race higher as traders hedge their bets towards coming inflation.
If the Federal Reserve shock the market and they do acknowledge rising inflation and an intention to act then the US dollar is likely to rise, and the price of gold will likely fall.
This has clear implications for sterling. Furthermore, the United Kingdom releases the May CPI report this week, which is likely to show inflationary pressures building in the UK, at a time when the domestic economy is just starting to expand again.
On the technical front, the GBPUSD pair has been trapped between the 1.4090 and 1.42o0 price range over recent weeks as the upside momentum in the pair starts to wane as traders await global central banks next move.
Looking at a chart of sterling right now, a move below the 1.4090 level could send the GBPUSD pair sharply lower towards the 1.4000 area. A break above the 1.4200 level should cause a counter rally towards the 1.4330 level.
The GBPUSD pair will turn bearish in the short-term for the first-time since mid-April this year if the pair holds beneath its 200-period moving average on the four-hour time frame, around the 1.4090 level.
According to the ActivTrader Market Sentiment tool shows that some 38 percent of traders remain bearish towards the GBUSD pair right now. The overall sentiment skew is flagging the potential for further losses. Personally, I favour more downside in the GBPUSD pair while the ongoing bullish sentiment bias remains this large.
GBPUSD Short-term Technical Analysis
Looking at the four-hour time frame, the GBPUSD pair is clearly trapped within a range, between the 1.4090 and 1.4230 levels. A range break of some 140 points could take place once we see the 1.4090 to 1.4230 price range.
In terms of strategy a more conservative approach may be to sell a range breach under the 1.4090 level and buy a break above the 1.4230 level.
More aggressive traders may try to buy the bottom of the established price range or sell the top of the range. This is called playing the range. A range break is expected after the FOMC meeting.
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GBPUSD Medium-term Technical Analysis
According to the daily time frame a huge, inverted head and shoulders pattern continues to loom of the pair, meaning the bigger picture clearly favours buying price dips.
This pattern holds a massive upside target of 3,000 points, which means the medium to long-term price path for the GBPUSD pair looks particularly positive. Buying dips towards the 1.4000 to 1.3800 price area looks to be a good strategy. Overall, watch out for explosive gains above the 1.4377 level.
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