Fed monetary policy path is what is giving the USD impetus and going forward, we expect the USD to rally at least from fundamental and technical hints. Fundamentally, we had that key note speech by PM Theresa May on Friday where investors were largely disappointed by her flat statements. No mention of any terms and conditions as far as Brexit is concerned and a wide berth of the position of UK in regard to the mandatory payment stated by the EU. On the quote side of things, Yellen and other Fed president are overly hawkish. It is obvious that the stock market bubble is what is driving some of their policy changes and taming further moves high should soften things in case there is a fall from the current multi year highs. From what we now know, the Feds are going to raise rates one more time this year and thrice next year.
Technically, last week’s candlestick closed above the upper BB forming a huge inverted hammer. This kind of set up is rare and despite anticipation of more hikes by the BoE in the coming months, I really think the GBP rally is topping. Remember, over the past six days there has been nothing other than horizontal price movement within a narrow 200 pip range after BoE hawkish comments. I expect a correction down towards 1.32 and then 1.28 in the coming days or weeks especially if price breaks the 6 day support at 1.345. Furthermore, in the weekly chart, there is a distinct bear divergence in relation to the stochastics. Price are moving higher with dwindling bullish momentum, that is, higher prices are supported by decreasing bullish momentum.
For this reason, I will trade as following with a pending order:
Sell Stop: 1.34
Stop Loss: above 1.36
Take Profit: 1.32 and 1.28
Have a good trading day