Trading the British Pound rate announcement can be tricky as the market can move against a trader and forced to be stopped out unless they are using binary options and spreads which limit risk on entry. This morning the charts indicate a potential move down after the rate announcement and here’s why.
First, looking at the higher timeframes (240 minutes and 60 minutes), the price is making higher highs but the stochastics is making lower highs. This indicates a loss of momentum in the uptrend. A common misconception is that the market will turn on this type of divergence. This type of divergence actually indicates a retracement is likely to test for potential support. The first level of support is around 1.3208.
Going down to the 15 minute British Pound chart, again, the chart shows a very weak uptrend because the stochastic is making lower highs with price making higher highs. On the 15-minute chart, the first level of support is around 1.3223. This is the area to watch prior to the rate announcement. If price cannot break through 1.3223, then an other upward move could potentially be anticipated and traders, with a bias to the upside, could choose an OTM binary option or even a spread with a floor around where price is currently trading.
If price manages to break the support areas, it will form an area of resistance, and then retest it to ensure the resistance will hold and push price down. More than likely the support will form around 1.3250 or 1.3260, so these are the areas to watch.
A highly respected trader, trainer, author, and speaker residing in North Carolina. She has over 15 years of experience in trading and in the development of custom indicators. She is a successful author and has published several books on topics like how to use volume analysis, trading binary options and spreads. Gail is also a frequent contributor to Stocks & Commodities magazine. She has been recognized as an authority on Volume Analysis and has been asked to speak at the Traders Expo, Traders World, the Wyckoff Volume Analysis Conference, and Tradestation User Groups.
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