Cable Looks Supported Amid Torrid Geopolitical Environment
Cable, or the GBP/USD pair, has shown signs of life in the last couple of days. This makes sense because we had approached the crucial 1.25 handle, an area that of course is large and round, a place that attracts a lot of attention. Beyond that, we have recently seen a few macroeconomic situations come into play that can change sentiment.
Federal Reserve Hints at Softening policy
The Federal Reserve has recently suggested that they were willing to soften monetary policy, which of course is very negative for the currency, and therefore the greenback giving back some of the gains against the British pound makes quite a bit of sense. Beyond that, later in the day on Wednesday, we have the Federal Reserve release and a statement that could give clues as to whether or not they will soften further. They are widely expected to, although not necessarily during this meeting.
As they give hints of monetary policy softening, it should continue to work against the greenback. Overall, the Federal Reserve is a big part of this trade.
Brexit Again at the Forefront
Brexit continues to be a major thorn in the side when it comes to this pair, and everything else involving the British pound in general. As we don’t necessarily know what’s going to go on with the Brexit, even if we do rally from here it is probably a very short turn of events, as there will be plenty of volatility when it comes to the Brexit, as headlines come and go. Ultimately, it’s very likely that we see noise, but the upside will probably be somewhat limited.
Levels to watch
There are various levels to watch when it comes to the currency pair right now, as one would expect. With the global markets all over the place, it’s difficult to get overly excited about anything in general, so therefore you should tighten up what you’re looking for.
Looking at the chart, the most obvious level is the 1.25. A break down below there would of course be negative, and at that point could open up the door to the 1.2250 level. A break higher from here opens up the door to the 1.2725 area which has been resistance in the past. There is a lot of support and resistance at both of those levels, so unless the Federal Reserve blows the market out of the water, or unless we get some type of headline coming out of London, it’s likely that we will go back and forth in this general vicinity.
In general, this has been very bearish, and I think that will probably continue to be a lot of crosswinds, but right now I think the best way to play this market is to simply play this range. At the end of the trading week, we may have a clear break out or break down, but until then it’s going to be very noisy. In general, this is a market that will continue to be noisy so I would put small positions on more than anything else and take advantage of obvious barriers to play back and forth.