The Pound Sterling is consolidating before the next major move
In light of recent positive news out of the UK and the potential for a disappointment for the US dollar bulls from the Federal Reserve's meeting on Wednesday we are mildly positive on this pair. However don't get overeager because the Pound exchange rate has pretty much priced in most of the positive news for it.
The Pound exchange rate has been priced
We wouldn't be surprised if after a pike higher on Wednesday following the FED the pair will give back its gains.
The start of the week brought in some ranges that we will closely look at and expect and take a trade on a pending breakout above 1.6350 or below 1.6260. For now we are neutral with a bias to the upside because of the FED.
We will wait for a chart pattern confirmation because it is a very risky business to trade around the last proper liquidity days of the year. Starting today our strategy is to buy calls on dips towards 1.6260 on a daily basis.
If that level is broken by at least 30 pips we would go back to neutral. For now it would be rather safe and we advocate our readers to keep an eye on inflation data coming out tomorrow from the UK and the US.
Any high inflation numbers in the UK would be signaling a strong pound as the Bank of England will undoubtedly be willing to act sooner rather than later as new governor Mark Carney has to establish his credibility.
If the data from the US disappoints we will see a lower dollar as the federal reserve is not likely to move absent inflation pressures and start tapering. That is the only difference between now and the last hiking cycle that Alan Greenspan has embarked on in December 2005 before his retirement in 2006.