As outlined in our weekly Fx analysis of GBPUSD, the tensions between Russia and the West and the economic crisis from this fallout should continue to underpin the USD, particularly versus European currencies, including EUR and GBP.

With GBPUSD rallying so far this week, it could be setting up for an attractive shorting opportunity toward the 1.3150 - 1.33 resistance area. Remember, this area was a critical weekly support zone that we’ve discussed on many occasions in our past weekly Fx editions. Now it has been broken and it seems this rally is making a test of this technical zone 1.3150 - 1.33 from the other side.

We discuss this potential short setup below.

The Fed meeting tonight and BOE tomorrow practically guarantee high volatility on GBPUSD. But this also could mean that our abovementioned 1.3150 - 1.33 area will be reached, even if only for a brief moment. That could be the opportunity to go short.

Of course, the current rally could also reverse before it reaches 1.3150. Especially if the outcome of the Fed meeting tonight is remarkably hawkish, that could quickly send GBPUSD down to 1.30.

Still, the safer approach (first scenario) is to wait for GBPUSD to reach 1.3150 - 1.33 and then look for reversal signals/patterns on intraday timeframes such as 1H and 4H, which could provide the signal to enter short. Now, exactly at what level such a reversal happens is hard to say ahead of the Fed and BOE meetings as the next 24 hours could get very volatile in GBPUSD, and a big spike up or down wouldn’t be a surprise.

The other scenario (e.g., if Fed is hawkish and BOE dovish) would have GBPUSD continue down below 1.30 without touching at least 1.3150. In this case, entering short on a break below 1.30 would be an appropriate approach, targeting 1.2850.

Importantly, in the larger context, the outlook for GBPUSD is bearish. The break below 1.3150 on the weekly chart indicates that GBPUSD should eventually break below 1.30 as well. The first target to the downside is the 1.2850 zone. 

Scenario 1 (current GBPUSD rally reaches 1.3150 - 133 area):

Entry: 

• Look for the rally to lose team toward 1.3150 and above. 
• A bearish signal or pattern (potentially on 1H or 4H chart) could provide the entry. 

Stop loss:

• Above the bearish reversal signal that triggered the entry
• GBPUSD should not climb above 1.33 for this trade will work successfully

Targets: 

• 1st - 1.30
• 2nd - 1.2850
• Longer-term target: 1.25-1.26 area

Scenario 2 (GBPUSD breaks below 1.30 without reaching 1.3150 first):

Entry: 

• Entry triggered on a break below 1.30

Stop loss:

• Above the most recent swing high on 4H timeframe (currently that is around 1.31 but will surely change after Fed and BOE)

Targets: 

• 1st - 1.2850
• Longer-term target: 1.25-1.26 area