Technical Entry For GBP/USD

The break of trendline support on the daily chart has worked out well so far, but if you missed it there could be another entry coming up very soon.

If we do see two votes for an increase at Tuesday's FOMC meeting, something that's well within the realm of possibility since two banks voted to increase the discount rate at the June meeting, that's likely to be very supportive of the dollar. Here's a technical entry on the daily GBP/USD chart to use if that does occur.

Two lines of trend support have been drawn on the chart. The first is from January 22 to February 20. The second is from May 14 to June 13.These lines are converging now into what likely will be a strong area of support where it may be possible to see a technical bounce to the upside. Although there are times when we might take a short on a retrace to the upside (which for me represents an improvement in price) I think in this case the best thing to do is to either trade a break or wait for a daily close at some point below. Seeing that will convince me that the market truly believes in a rate increase.

Even with two votes for an increase there are going to be many who will not believe the Fed is signaling an increase, and with good reason. Credit and housing markets still have enormous problems, the Fed just extended the special lending facilities through January 30 2009 and mortgage rates themselves have actually gone up (in part because the market is anticipating a rate increase for later in the year), a deadly situation since demand is so constrained. Yet, as we previously mentioned, the Fed needs to perform that delicate balancing act and since being vigilant on inflation (and supporting the dollar in order to bring oil down) is a component of this, they do need to show the possibility exists for a rate increase.

We'll be parsing the statement very closely, so check back afterwards.