Inflation runs hot in the United Kingdom as it exceeded all expectations for the month of May. Naturally, the GBP/USD pair bounced from the lows, but the technical picture remains weak several hours ahead of the Fed’s decision.
The GBP/USD pair is one of the most volatile currency pairs part of the FX dashboard. Yet, in the past month, it traded in a very tight range, of about one hundred pips or so.
The Federal Reserve of the United States is expected to deliver its decision and staff projections for the period ahead. Later in the North American session, the markets will focus on how will the Fed members see the possible rate increases in the years ahead, as the dot plot will trigger an increase in the market’s volatility.
Perhaps this is the reason why the markets were so quiet lately. Tight ranges such as the one seen on the GBP/USD are also seen on the EUR/USD or the AUD/USD markets.
From a technical perspective, when the price breaks the range, the measured move equals the width of the range. In this case, it means that we may look at 1.40 as the confirmation of a toppish formation.
Bears may want to remain short with a stop at the recent highs and a take-profit set up by using a risk-reward ratio bigger than 1:2.
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