This last week of July will bring two very influential decisions that can have a dominant influence on price action – namely what the Federal Reserve and Bank of England will do next with interest rates.The Fed
The probability of the Fed hiking rates at this meeting is very low. For better or worse, the Fed is explicit in its forward guidance that it will work on a quarterly basis. Any clues in the statement about whether the Fed plans to hike in September will be closely watched.
The market is looking to determine whether the Fed is looking to deviate from between three and four interest rate hikes. According to Fed funds futures, markets are pricing in a very optimistic scenario about future rate hikes. The BOE
The BOE interest rate decision perhaps has more potential to be a catalyst for a price trend to develop in currency markets. According to the overnight swap rate, the probability of a BOE rate hike at this particular meeting stands at 77%. The GBP/USD exchange rate is in a position where a rate hike can be a bullish catalyst a reason for a pound rally.
In the current market environment, very few central banks are even contemplating a rate hike, so a BOE interest rate hike can have a more significant market impact. However, since Brexit remains a major cloud hanging over the British Pound, the likelihood is that any GBP/USD rally would be short-lived. Source: LCG MT4, 30/7/18
For the GBP/USD bullish case scenario to get traction, we would need a break and a close above the 200 EMA on thus 4hr chart and the resistance level at 1.32.
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