GBPUSD Comes Off The Rails
As we come to the end of what has been one of the more eventful weeks in a FX markets for a while, it is time to take stock of wins and losses. Weeks like this where there have been big price moves can be an exciting time for traders who were on the right side of the move, and a difficult time for those who got the moves wrong. However, we must also spare a thought for those who seem to suffer most; the traders who missed the moves. So, looking around the markets this week and talking with other traders, the big move this week has been the rally higher in USD. One of the biggest trades that has come out of the move is the sell off in GBPUSD which dropped by over 270 pips ( 2%). So, if you caught the move, well done! And if you missed it? Better luck next time. Let’s take a look at what happened and why this was a great trade.
What Caused The Trade?
Hawkish FOMC Meeting
The biggest catalyst this week was of course the June FOMC meeting. While the Fed didn’t announce any shift in policy and delivered a statement which was mostly unchanged from last time around, there were some big, technical difference which drove USD higher. The Fed’s dot plot forecast was revised higher with 13 policy makers now projecting a rate hike as early as 2023, up from just 7 in March. Additionally, the Fed revised its growth and inflation forecasts higher for the year which has raised expectations of Fed tapering over the remainder of the year.
UK Government Postpones Lockdown Easing
Now, the USD surge higher which occurred in response to the meeting was really the icing on the cake for GBPUSD which had already seen a weakening of sentiment. Over recent week, upside momentum had all but vanished amidst growing expectations that the UK government would delay full reopening beyond June 21st as a result of a growing third wave of the virus. The UK government did indeed announce a month long delay beyond that date and has also warned that this could be pushed back further if virus cases don’t fall.
So, with GBP uncertainty back on the table and the US Dollar rising amidst hawkish Fed expectations, it was really a perfect storm for GBPUSD this week. Let’s take a look at the technical picture.
Technical Views
GBPUSD
The recent block of consolidation at highs saw RSI flagging bearish divergence, with MACD turning bearish before price broke lower. The sell off has taken price below the 1.3997 level and is now approaching the local rising trend line support. Below there, the 1.3676 level is the next key support to note.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.