GBP/USD bounces in Fed aftermath but remains pressured

<p>GBP/USD made a modest bounce on Thursday but remained pressured in the aftermath of Wednesday’s Fed statement, which was largely looked upon as hawkish-leaning. With […]</p>

GBP/USD made a modest bounce on Thursday but remained pressured in the aftermath of Wednesday’s Fed statement, which was largely looked upon as hawkish-leaning.

With regard to the statement, of particular note was the de-emphasis on global economic concerns, which effectively helped lower the barrier to a future rate hike. Also, the statement mentioned that a decision will be made as to whether it is “appropriate to raise interest rates at its next meeting.” This semantic change raised speculation that the December Fed meeting is still very much in the running to see the first US interest rate hike in nearly a decade.

As a result of the statement and the ensuing surge in the US dollar, GBP/USD dropped further below key resistance (prior support) at 1.5350, as well as both its 50-day and 200-day moving averages. Incidentally, last week saw the 50-day average drop below the 200-day average for the first time since June. This technical indication, often referred to as a “death cross,” reinforces a bearish technical view for the currency pair.

GBP/USD Daily Chart


Since mid-October, GBP/USD has taken on a significantly bearish stance after repeatedly attempting and failing to break out above the major 1.5500 resistance level over the course of more than a week. Those failed attempts were followed by a sharp fall that resulted in the noted drop below the 1.5350 prior support level last week.

Overall, GBP/USD continues to maintain a bearish technical bias on both a medium-term and short-term basis. However, two key fundamental events next week should help determine if this bearishness is reinforced or challenged. The first one is next Thursday’s UK Official Bank Rate and Monetary Policy Summary. With the UK also potentially on track to raise interest rates in the foreseeable future, any hawkish or dovish signals coming out of the Bank of England next week should be a major mover of the British pound. The second event is next Friday’s US Non-Farm Payrolls and Unemployment Rate reports for October. With the last four Non-Farm Payrolls reports falling significantly below prior expectations, next Friday’s report will be closely watched for its potential implications on the timing of a rate hike in the US.

In light of these major events next week, if GBP/USD is able to continue trading below the noted resistance level at 1.5350, the next major downside target is at the key 1.5100 support level, where the currency pair last bottomed out in early October. Any further downside momentum could pressure the pair down towards key psychological support at the 1.5000 handle.

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.