The GBPUSD fell to a new low, hitting the rising 100-hour moving average at 1.3503, near the swing zone of 1.3505–1.3514. This combination of support levels gives traders a chance to either take profits or buy the dip. If the price remains above this area, we could see a bounce back, especially if it breaks the 38.2% retracement level at 1.35263. This could lead to positive momentum. On the other hand, if the price drops below this support zone, it might indicate a bearish trend, causing buyers to exit and potentially leading to further declines.

Potential Volatility Strategy

Right now, there’s an opportunity for traders to profit from potential volatility. The GBPUSD is sitting at a key support level, which often signals a big price move is on the horizon. Strategies like buying straddles or strangles may work well since they profit from large movements in either direction. A rebound seems possible, especially with important economic data on the way. Recent UK inflation hit a 30-year high of 7.0% in March 2022, pressuring the Bank of England to keep raising interest rates. This hawkish approach could be a strong boost for the pound, making call options appealing if the support holds. However, the strong US dollar is a significant opposing force. The Federal Reserve is planning aggressive rate hikes to manage its own inflation. If there are any signs of weakness in the UK economy, the dollar might take charge. A drop below the current support level would signal that we should consider put options or short futures positions.

Historical Context and Market Sentiment

Looking back, when both central banks are tightening policies, it often leads to choppy and volatile price movements instead of a clear trend. We saw similar fluctuations during the 2017-2018 period when both banks raised rates. This historical pattern suggests that traders should be ready for sudden reversals and avoid locking into a single direction. Additionally, the latest positioning data provides insights into market sentiment. The most recent Commitment of Traders (COT) report shows that while large speculators are still net short on the pound, they’ve recently cut back on those positions. This indicates that some major players are less confident about further declines, supporting the idea of a potential bounce from this crucial technical area. Create your live VT Markets account and start trading now.

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