- The British pound has pulled back just a bit in the early hours on Tuesday, as we are looking at the 1.32 level as a bit of a ceiling, but perhaps more importantly, we are looking at a bullish flag offering a bit of resistance.
- Keep in mind that this is a market that has a central bank decision on Wednesday.
The FOMC, of course, will have a major influence on the US dollar, but we also have the Bank of England interest rate decision on Thursday. So, this is going to be ground zero for a lot of volatility for the next couple of days.
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In general, I think this is a situation where short-term pullbacks probably come into the picture to offer perhaps potential buying opportunities. We'll just have to wait and see. If we were to kick off the bullish flag perhaps breaking above the 1.3250 level. The so-called measured move is going to be for about 500 pips, meaning that the British pound could go all the way to the 1.3750 level. Of course, we have to keep in mind that technical analysis is just a suggestion and it's not gospel. So that is perhaps your target, but that needs Jerome Powell to become extraordinarily dovish to pretty much come out and say, yes, the Federal Reserve is not only going to cut this time, but we're going to continue to cut going forward. In that environment, the US dollar probably loses some strength.
Risk Will Be Crucial
But if we have a situation where there is a lot of risk out there when it comes to global trading, then a lot of people will run into the US dollar for safety, generally to buy US Treasuries. But that doesn't necessarily have to be the case. So, this is going to be an interesting pair to watch. The bullish flag is most certainly going to be something that a lot of technical traders pay attention to. The 1.30 level underneath, I think, is your short-term floor.
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