GBP/USD broke down significantly over the course of the trading session on Monday as we have broken through the 1.35 level and completely eliminated the idea of a trend line breakout. Right now, the market looks like it has had a “false breakout “, and this is how we are going to have to pay attention to the market. At this point, if we break down below the candle for the trading session on Monday, it is very likely that we will see more downward pressure. At that point, I would anticipate an attempt to break down to the 1.34 level initially.
However, we have the FOMC meeting and statement on Wednesday. And what is even more important, we have the subsequent press conference. As such, the next 24 hours could be a bit quiet in this pair as we wait to see how hawkish Jerome Powell is going to be. Ultimately, much of what happens next will likely come down to what you have to say. The harder it shows, the more likely the pair will fall.
On the other hand, if the chairman steps back and suggests that he is not as hawkish as the market has anticipated, then it is possible that the British pound could rally a bit. That said, there has been a lot of technical damage in the last couple of days, and it suggests that the false breakout will be tested. There is a chance, of course, that we go sideways, but frankly this pair needs help from the central bank more than anything else at the moment.
The Bank of England is expected to raise interest rates , but right now that won’t have as much of an effect as the Federal Reserve would. The British Pound has been a bit more resilient against the Dollar than most of the G10 currencies so this is something worth paying attention to. However, at this point I would still have to favor the downside, but I recognize that there is a risk to the upside given that statement and the press conference that is going to be held. If we do manage to break down below the 1.34 level, it is very likely that we will go looking towards the 1.32 level. If we recapture the 200 day EMA, we will continue to go higher.