The world is prepared for the U.S. rate hike set for September. U.S. Dollar pairs have taken wide swings due to the rate hike anticipations and rumors of it being pushed further to January of 2016. According to Reuters, central banks around the world are prepared for the Fed’s rate hike. The rate hike is expected to cause the U.S. Dollar to shoot higher due to the additional capital inflows over time from a higher interest rate advantage.
Starting off with the EURUSD pair, we are overall bearish especially with the rate hike still on the table. The technical setup works very well in this situation.
If you take a look at sell-off, it seems as if price found support at a previous resistance zone that has broken out. Shortly after this, price broke through the zone signifying that the support zone is not holding up. Price is currently testing the zone once again on a bullish 30~ pips open. This is a very high reward to risk short entry. Your stop can be placed above the resistance zone provided that it doesn’t hold up. The profits are literally endless given the magnitude of the rate hike. Of course, postponing the rate hike will definitely send the EURUSD pair higher as it demonstrates a lack of strength in the U.S. economy.
Let’s not forget that this bullish move is also touching an ascending trend-line. Since this is a 4-Hour chart, I would say the next 12 hours to 16 hours are critical to see how price reactions as it consolidates between the ascending trend-line and resistance zone. I do not expect this trend-line to play a crucial role in the price action. The rally 1.1021 price level formed this trend-line and so was not an actual test hence why I do not see a strong trend here.
I previously stated that the GBPUSD pair remained in a range. The upper range zone no longer held true and so I have removed it. Despite the lower break-out from the support zone, I have decided to keep it for now in case this zone serves as a future resistance. Given the day or so before market close, price shot below the support zone, but made a relatively weak retest into this zone and dropped another 80 pips or so. This pair opened higher today as we approach the much anticipated rate hike in September. Given the gap up, is it possible to say the rate hike will be pushed back?
Rather than trading on guesses and rumors, we can actually establish a rule based trading approach here. The support turned resistance zone provides an estimation of where your stop loss should be if you choose to sell off into this pair. I may place a couple of intraday shorts, but would not do a sell and hold.
Unlike the EURUSD pair, GBPUSD has a couple of demand zones that could cause an upshot in price. The 1.53~ is a freshly tested new demand zone based off of the market open. The 1.52 demand zone isn’t fresh, but retested twice. The second time resulted in a very strong move of approximately 750 pips. If price does test the 1.52 level, I have to give consideration that it just may cause another strong rally if history repeats itself. My current trading plan is to make intraday sells when appropriate, but the 1.52~ price level remains a strong buy consideration area for me.
Stay tuned for my next set up price chart setups and trading plans.