GBPUSD tested key support this week and is moving higher ahead of today’s FOMC, but the highest conviction trade lies ahead.
Get all the details and see exactly how I’m trading it in today’s video.
GBPUSD has reached a key support area ahead of today’s FOMC.
I mentioned the 1.285-1.295 area in last weekend’s forecast, and the pound is catching a bid just above this region at 1.30.
However, attempting to trade GBPUSD here is risky for a couple of reasons.
The first is today’s Fed rate decision and statement at 2 pm and 2:30 pm EST, respectively.
Historically, FOMC is a market-moving event. But today’s will likely shake things up even more given everything going on in the world right now, from inflation to the Ukraine invasion.
Furthermore, the Fed is attempting to come off of an easing cycle without panicking markets, a task that’s easier said than done.
The second reason trading GBPUSD here is risky, in my opinion, is due to the pair’s immediate support and resistance areas.
Support for GBPUSD starts at 1.30 and extends down to 1.285. On the other hand, key resistance isn’t far away at 1.32.
With GBPUSD trading just below 1.31 as I type this, it’s caught right between support and resistance.
I also think trying to short a market that’s down over 500 pips in a month is risky on its own.
So what’s the better approach? And by “better” I mean the one with more conviction and a more favorable risk to reward ratio.
I think the better play is to wait and see if GBPUSD can reclaim 1.32 on a daily closing basis. If it can, we probably see at least 1.338 if not channel resistance near 1.335.
As mentioned above, I wouldn’t want to short a market that’s down this much in the last four weeks anyway. So playing a reclaim of 1.32 within a downtrend makes a lot of sense.
Keep in mind that I swing trade the higher time frames, so this approach won’t be for everyone.
Regardless, the facts remain the same. GBPUSD is in a downtrend with key support just below the recent lows and needs to reclaim 1.32 to have any chance at a (material) rally in the coming weeks.