GBP/USD Weekly Analysis: Traders Braced for Additional Near-Term Volatility – 15 September 2024

The GBP/USD went into the weekend near its high for the week, after a handful of days which produced rather volatile prices for day traders.

-- The GBP/USD exchange rate went into this weekend near the 1.31218 ratio, on Friday the high for the currency pair challenged the 1.31570 vicinity before reversing slightly lower.
-- Trading in the GBP/USD last week was full of volatile reversals and since the last week of August the currency pair has proven difficult for traders looking to latch onto a trend and ride momentum.
-- The GBP/USD has produced many reversals and its price realm between 1.30000 and 1.32000 has proven a rather fast playing ground.
Day traders who are more technically inclined may have found a better perspective than traders trying to follow pure fundamentals the past two weeks. Behavioral sentiment shifts in the GBP/USD continue to cause headaches as financial institutions try to gain a clear outlook regarding central bank dynamics, and making things more nervous is the fact that the U.S Federal Reserve will deliver its Federal Funds Rate this Wednesday, and the Bank of England will announce its Monetary Policy Summary this coming Thursday.

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Near-Term Tests of Price Realm and Coming Volatility

Day traders this coming week will have to brace for price tests which will flourish as financial institutions also position for the central banks. The ECB delivered a major clue this past week when they only cut their Main Refinancing Rate by 0.25%, which seems to indicate the Federal Reserve will oblige with the same interest rate cut this Wednesday. In a sense financial institutions have already traded the Fed’s interest rate to come this week into the GBP/USD.

There has been plenty of chatter by many analysts who believe the Federal Reserve needs to be more aggressive and cut by 0.50% this week, but this is unlikely to happen. Besides the Fed news which will come in the middle of this week, the U.K will release critical inflation data on Wednesday and this will affect the GBP/USD. The Consumer Price Index ratios for the broad and Core numbers will create a response. If the data comes in weaker than expected this could fuel some GBP/USD buying.

Headwinds and Existing Sentiment in the GBP/USD

In the first week of July the GBP/USD was trading near the 1.26500 level. In the middle of July the currency pair had climbed to nearly 1.30500 before reversing lower and touching the 1.26700 ratios on the 8th of August. Price velocity in the currency pair has been solid and provided day traders with plenty of wagering action.

-- The ability of the GBP/USD to maintain prices above the 1.31000 level must be watched because this is a key barometer of sentiment.
-- ;Although the BoE is not expected to cut its Official Bank Rate this Thursday, because the central bank cut the rate by 0.25% in August already, the rhetoric from the Bank of England should be listened to intently.
-- ;If somehow the U.K CPI data on Wednesday is lower than anticipated it could spark murmurs about the need for the BoE to be more aggressively dovish.
-- However, inflation remains a nervous parameter for central banks that worry about stubborn tendencies.
-- The current price range of the GBP/USD will be affected largely by the rhetoric coming from the U.S Fed on Wednesday.
-- If the Fed sounds more dovish than expected this would likely fuel GBP/USD buying.
GBP/USD Weekly Outlook:Speculative price range for GBP/USD is 1.30000 to 1.32900

The price range of the GBP/USD has been wide. The ability to trade to lows of nearly 1.30000 this past Wednesday should serve as a warning sign that price velocity remains dangerous in the GBP/USD and all of Forex. This week could prove to be a wild ride for traders because of the Fed and BoE. Yes, the CPI data from the U.K will be important, but the Fed and its guidance will prove to be the lynchpin for the GBP/USD, particularly if the Bank of England sounds rather cautious on Thursday.

Traders should expect volatility into Wednesday and if clarity is delivered via a more dovish sounding Fed, there is a potential for the GBP/USD to climb. However, if the Fed somehow remains rather neutral sounding regarding additional rate cuts this could open the door for a sea of whipsaw results and danger for day traders.

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Original Source DailyForex.com provides daily fundamental and technical analysis and signals for those looking to trade based on trends in the currency markets.