Trading Setup Ahead of Fed Decision

The GBP/USD pair found strong support at 1.2794 on Monday. 

• Buy the GBP/USD pair and set a take-profit at 1.2950.
• Add a stop-loss at 1.2845.
• Timeline: 1 day.

• Set a sell-stop at 1.2860 and a take-profit at 1.2800.
• Add a stop-loss at 1.2960.

The GBP/USD exchange rate drifted upwards after IMF upgraded the outlook of the global economy. It also rose after the US published encouraging consumer confidence and housing numbers. The pair rose to 1.2877, the highest point since Friday.

There were several important economic events on Tuesday. First, the International Monetary Fund (IMF) decided to upgrade the economic outlook of key economies. In a report, the agency noted that the UK will avoid a recession narrowly, helped by the strong consumer spending. It also noted that the possibility of a soft landing in the UK had increased in the past few weeks.

Second, the US published strong consumer confidence data. According to Conference Board, consumer confidence jumped to 117 in July, the highest level since 2011 as inflation dropped. The report noted that consumers were upbeat even as interest rates jumped. Therefore, these numbers mean that consumer spending could rise in the coming weeks.

Further, the US published strong house price numbers. The house price index rose by 0.7% in May, higher than the median estimate of 0.2%. It rose by 2.8% from the same period in 2022.

These encouraging numbers came as the Federal Open Market Committee (FOMC) started its two-day meeting. Economists expect that the bank will decide to hike rates by another 0.25% and push them to the highest point since 2001.

The rate hike itself will not move the pair. Instead, traders will focus on the forward guidance of the next rate hikes. A sign that the bank will pause or cut rates later this year will be bullish for the GBP/USD pair and vice versa.

The US will publish the latest mortgage data and new home sales numbers. The impact of these numbers on the pair will be limited.

The GBP/USD pair found strong support at 1.2794 on Monday. This price was important since it coincided with the ascending trendline that connected the lowest points since May this year. It was also a few points below the crucial level of 1.2845, the highest point on June 16th. The pair has also moved slightly above the 25-period moving average while the Stochastic Oscillator has pointed upwards.

Therefore, the pair will likely continue rising ahead of the Fed decision. This could see it jump to the key resistance point at 1.2950. The stop-loss of this trade will be at 1.2840.

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