- During the trading session on Wednesday, we have seen the British pound rallied quite significantly against the US dollar, but it is an area of major resistance.
- At this point, it could be a very dangerous pair to trade, mainly due to the fact that during the next session, we will see the Bank of England come out with an interest rate decision.
- With that being the case, we have to be cognizant of the fact that although they are expected to cut interest rates by 25 basis points, the question then becomes whether or not they sound like there are more interest rates coming, and at what type of velocity?
This is the type of trade that I absolutely hate being involved in, and therefore I won’t be. However, once we see the true reaction to how the Bank of England statement comes out, meaning that once there’s been a few hours gone by, then you can start to talk about how the market might react for a bigger move. At this point, it’s clear that the market has been in a downtrend for a while, so there’s no reason to think that suddenly we are at the end of the downtrend for longer-term move.
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Friday Could Determine Everything
At this point in time, the Thursday session is going to be crucial for the British pound part of the equation, but we also have the Nonfarm Payroll announcement on Friday that will give us an idea as to what the Federal Reserve might be looking at. It is because of this that I would expect the British pound to be very volatile over the next 2 days, at least against the US dollar. However, if we do see the British pound really start to take off here, the trade in the short term might be something along the lines of GBP/CHF, avoiding the US dollar altogether. It’ll be interesting to see how that plays out, but right now I think we are at a crucial inflection point.
The trade is simple. Let’s see how the Friday session closes, and that could tell us what happens for the next 300 pips, maybe more than that. Jumping into this trade right now is a very dangerous thing to do as liquidity will disappear, and you are trying to guess what the attitude of traders around the world will be due to the interest rate decision and more importantly, the press conference/statement coming out of London, and then how they will react to the jobs number. It’s not a market to be gambling in right now.
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