The GBP/USD produced a solid week of gains, as the currency pair seemed to enjoy a shift in sentiment regarding bullish optimism centered on the prospect of a dovish-sounding Federal Reserve.
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One month ago on the 10th of May, the GBP/USD was trading near the 1.26780 vicinity, this before the Forex markets shook and the currency pair started to incrementally track lower. The GBP/USD broke below the 1.23100 level on the 25th of May, this before starting a reversal higher which saw additional volatile price action fighting to gain value. The GBP/USD went into this weekend near the 1.25785 ratios as the Forex pair exhibited strong buying action much of last week.
The sudden optimism that is seemingly flooding the Forex market and making the USD weaker is noteworthy. Quite possibly speculators and financial institutions are correct and the U.S. Federal Reserve will announce that it is not going to increase interest rates this coming Wednesday on the 14th of June. This outlook has certainly caused buying strength to build in the GBP/USD. But this notion could prove wrong still.
With the 1.26000 level staring traders in the face with highs seen one month ago, some speculators are likely looking forward to this level being challenged sooner rather than later. There are, however, no guarantees the U.S Federal Reserve will deliver the news that financial institutions apparently want to hear this week. If the Fed were to actually increase the Federal Funds Rate, the GBP/USD would likely suffer a rather violent selloff. Volatility would be dangerous.
If the U.S Fed announces it will not increase the Federal Funds Rate this week, but will continue to monitor inflation and do what is necessary in the future, possibly increasing interest rates in the mid-term this could also damper expectations of a much stronger GBP/USD regarding upwards momentum. Traders need to be cautious because not only is the Federal Reserve on the schedule this week, but also important inflation data will be coming from the U.S. which will impact the marketplace and the GBP/USD.
- On the 13th of June, the U.S. will release its Consumer Price Index numbers.
- If the CPI number comes in with a surprisingly strong gain this would likely hurt GBP/USD momentum and cause caution to rise in Forex.
- Financial houses seem to have positioned GBP/USD holdings into a mode that signals they expect the U.S. Fed will not raise interest rates this Wednesday. But this decision is not actually known yet by the Federal Reserve.
The speculative price range for GBP/USD is 1.23900 to 1.26900
Traders should be cautious about having open positions in the GBP/USD before the Federal Reserve’s FOMC Statement on Wednesday. The announcement is going to cause a fast Forex market and the GBP/USD will get volatile and experience price action that is dangerous. Betting on what the Federal Reserve will say before they publically make their decision and outlook known will need solid risk management.
If the Fed were to surprise traders with an aggressive-sounding stance and say they intend on continuing to raise interest rates in the mid-term this could actually cause a momentary selloff in the GBP/USD, even if they do not increase the Federal Funds Rate this week. Traders and financial institutions have not had much clarity from the Fed the past month and in fact, they have heard different FOMC members say conflicting rhetoric.
The move higher in the GB/USD the past week was strong, and because of highs seen only a month before some traders may think higher ground is possible. However, traders should be willing to cash in profitable trades, and not keep their positions open allowing them to be hit by sudden volatility downwards. Traders may have their eyes on marks above the 1.26000 level this week, but they should not be overly ambitious and practice a cautious approach – particularly if they are using large amounts of leverage and have limited funds in their accounts. If the Fed were to sound surprisingly aggressive, solid risk management could save the day and stop a swift loss of money.