How Will The Fed Respond?

The $GBPUSD finally broke below psychological support at 1.5000 on the back of QE-induced euro selling. There is a bullish RSI divergence, however, at the lows. This is fueling the rally back to 1.5100 as the new trading week gets underway. However, it is likely to find resistance at the 50% Fibonacci level at 1.5109.


Traders, this week, have their eyes set to the Federal Reserve interest rate decision on Wednesday. It is likely that the $FED does nothing but it will be interesting to hear how Yellen performs during the press conference. Last month, she surprised the markets with her hawkish sentiment and the USD rallied as a result. A USD rally on a hawkish Yellen will manage to push the $GBPUSD to the lows at 1.4950.

However, it is a very different world now. The Swiss National Bank (SNB) has abandoned their currency peg in the $EURCHF, the Bank of Canada has cut interest rates, the Danish National Bank cut interest rates twice in a 1 week, the Central Bank of Nigeria has restricted USD buying versus the naira and the European Central Bank (ECB) has started in on a €1.1 trillion quantitative easing program. These unprecedented and surprise moves by the world’s central banks have likely been in response to the SNB or the ECB or both. So how will the $FED respond? The US central bank is not likely to enact monetary policy based on what others are doing or not doing. With Yellen hawkish but the rest of the FOMC fairly dovish along with the rest of the world, Wednesday will be a very interesting trading day and will likely dictate direction in the USD for the following trading sessions.

Given the chart, any rally in the $GBPUSD on a weakening USD seems well contained by the Fibonacci levels and the former support-turned-resistance zone. Trade what you see.

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