GBPUSD Range Setup (Sep 20, 2016)

Price is nearing the bottom of the range at the moment and might be due for another bounce.  

The 100 SMA is above the longer-term 200 SMA, indicating that the path of least resistance is still to the upside and supporting the idea that the range support would hold. Stochastic is also on the move up from the oversold region to show that bears are exhausted and that pound bulls could take over.

If so, the pair could make its way back up to the top of the range or at least until the middle around 1.3150. A breakdown from support, on the other hand, could lead to a selloff of around 550 pips, which is roughly the same height as the chart formation.

Last week, the BOE refrained from adding stimulus since they already cut rates and boosted bond purchases in their August decision. Still, policymakers seem to be keeping the door open for further cuts if the Brexit does more damage on the UK economy. On Friday, UK Chancellor Hammond warned that they risk losing access to the single European market if they push for immigration reforms in the Brexit negotiations.

Meanwhile, the US dollar is facing the upcoming FOMC statement later this week. Traders still seem to be divided on their expectations for the outcome as economic data has been showing improvements but these might not be enough to convince policymakers to tighten. Updated projections for growth and inflation are also due so these should give an idea of what the Fed has in mind for the rest of the year. 

Cautious remarks could force the dollar to turn as bulls unwind their rate hike positions. Also, this could bring risk appetite back to the table since businesses and consumers could enjoy low borrowing rates for  a bit longer. Additional volatility is expected during this event so wider stops are recommended.

By Kate Curtis from Trader’s Way