Cable coils near lows ahead of Fed and BoE rate decisions

CAPITALCOM:GBPUSD   British Pound / U.S. Dollar
Cable coils near lows ahead of Fed and BoE rate decisions

It’s a big week for Cable (GBP/USD) as both the Federal Reserve and the Bank of England are set to make crucial rate decisions.

The action begins on Wednesday with Fed Chair Jay Powell widely anticipated to keep rates unchanged at 5.5%.

On Thursday, attention shifts to Andrew Bailey's announcement at the BoE, where some uncertainty looms…

There is a possibility of a 25 basis point rate hike (Reuters), but the BoE's decision will be influenced heavily by the UK inflation figures released the day before the Monetary Policy Committee convenes. These figures are expected to show a slight uptick in the headline rate compared to the previous month.

On the price chart, cable is coiled and consolidating near recent lows. The daily candle chart (below) shows that cable has been trending lower for the last two months and this week’s price action has seen the pair tread water in anticipation of the key data releases.

Yesterday’s daily range was the smallest we’ve seen in over seven sessions and this narrow consolidation has a tendency to precede explosive directional price action.

GBP/USD Daily Candle Chart

If we drop down a timeframe and zoom into cables 4hr candle chart, we can see that this week’s consolidation has formed a bearish descending triangle pattern.

This pattern signals trend continuation and traders will be watching the pattern lows as a trigger for potential short positions.

GBP/USD 4hr Candle Chart

Risk management

Central bank rate decisions and inflation data releases have a tendency to cause outsized volatility. Traders should factor this risk into their position sizing, stop placement and trade plan.

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