The U.S. dollar has stabilized ahead of publishing the minutes of this year's last Federal Reserve (Fed) meeting. The Fed meeting minutes will be released today, November 23.
The expectations of many analysts are centered on the fact that the central bank may announce a slowdown in the pace of rate hikes. This is indicated by a decline in U.S. inflation and one of Powell's favorite indicators.
The expected yield on three-month Treasury notes has fallen below their current level. This signal tells us that a rate cut cycle is coming. Similar signals have been worked out in history and are shown in the chart below.
The difference between the current 3-month Treasury note yield and the expected yield
At the same time, UK inflation data continues to come out worse than forecast.
Inflation in Great Britain
Consequently, with the dynamics of the US key rate hike slowing, the UK will be forced to continue raising up to a high rate. The key rate differential will narrow, which will favorably affect the pound sterling.
As expected, markets reacted moderately to the new UK budget, which implies spending cuts and tax increases. It can be concluded that the new cabinet will not take extraordinary actions with the budget and will not cause a collapse of the pound sterling, as it was a couple of months ago.
A week and a half ago, the pound sterling broke its downtrend upwards. Yesterday and the day before yesterday there was a retest of this level, already from the top-down. The pound managed to bounce from this level, which opens the way for growth. In fact, there was a retest of the break-down level, which confirms the veracity of this breakdown.
According to the oscillator RSI overbought currency is not observed yet, there is space for the exit above.
The resistance level, which was tested several times in the summer (1.228), acts as the growth target.
The scenario for the cancellation of the growth will be the departure back to a flatter growing trend, below the support line (1.175).
It is likely that the sharp movement in the currency will take place today after the Fed's words on the near future of the monetary policy.
As a result, now we can try to open long positions on GBP/USD with the following parameters:
Take profit 1 – 1.228
Stop – 1.175