The GBP/USD pair broke to the upside during the session on Wednesday, slamming into the 1.55 level. This is an area that I have been talking about for some time now, as it is previous supportive, and should now be resistance. On top of that, as you can see on the chart I have marked the uptrend line for most of the summer. We broke down below that uptrend line, and now we are testing the bottom of it. With that being the case, I feel that the next 24 hours or so will be vital when it comes to which direction the British pound goes next.
Ultimately, this comes down to the FOMC Statement that comes out later today. I believe that there are 3 potential scenarios, and they will more than likely be the main drivers of what happens next in this particular pair. I also believe that the market showed on Wednesday what it believes will happen.
3 scenarios
Trading the currency market is going to be this simple on Thursday: simply paying attention to which of the 3 scenarios is real. If the Federal Reserve fails to raise interest rates, this market will go through the uptrend line and directly to the 1.58 level over the next couple of sessions. I would be very bullish at that point in time in buying the British pound hand over fist. On the other hand, they may do one interest-rate hike, and suggested they are going to wait before doing any others. That is going to be bearish for the US dollars well, as it shows real concern. I think we still got to 1.58 at that point in time, but it is going to be more of a slow grind.
The least likely scenario is that the Federal Reserve rate hike is accompanied by a statement that suggests more coming. If that’s the case, this pair is probably going to fall directly to the 1.53 level, followed very shortly by the 1.52 level, possibly in the same session.
