GBP/USD: heading for a test of the 200-hr SMA ahead of the FOMC

  • GBP/USD bulls in charge ahead of the FOMC showdown.
  • The 200-D SMA is the topside target at 1.3594. Below 1.3300, 1.3204 is eyed ahead of 1.3040. 

GBP/USD entered NY heavy, falling from 1.3366 to 1.3308 the low after the market felt that the CPI data, slightly lower than forecasts but unchanged from April's reading, was not enough for the BoE to think about raising rates in August. UK CPI came in at +2.4% YY vs 2.5% expected. 

However, the dollar has been on the backfoot for the best part of the European session and there was a subsequent turnaround where cable marched the bears all the way back to 1.3377 on broad-based dollar weakness ahead of today's FOMC showdown where markets expect a 25bps rate hike.

FOMC preview:

  • FOMC Preview: hike on the table… too little too late?

"Market's attention will focus additionally in chief Powell, as this is going to be just its second live meeting. Jerome Powell hesitated a bit in the previous presser and made no commitments to the future,"

 Valeria Bednarik, chief analyst at FXStreet explained, adding,

"For sure, he is worthy of the position he fills, giving precise answers and straight to the point to journalists, meaning that we may see more intelligent questions this time, and the answers will probably be much juicier than those of Yellen's speeches, amid his business-like approach."

Meanwhile, in respect to UK interest rate expectations, there has been a shift in sentiment in the market after this week's softer than expected UK manufacturing, earnings and inflation data. Sterling traders are looking ahead to Governor Carney's 5th annual Mansion House speech next week and the BoE's fourth policy meeting of the year. Ears will be out for any signals of an Agust hike, or indeed, any dovishness from the Governor given the recent soft data and Brexit risks.

GBP/USD levels

The 200-hr SMA is located at 1.3381 and the 100-hr SMA comes in at 1.3387. These guard a run to the top of the descending channel at 1.34 the figure. The double top highs of the same channel are located at 1.3420/25. Beyond there, bulls will have eyes for the 200-D SMA at 1.3594. The convergence of the 200-D SMA and 1.3583/1.3600 tops comes as the upside target while the 1.3708 level at the 50% Fib of 1.3040-1.4377 remains compelling on the wide. To the downside, analysts at Scotiabank argued that with losses below 1.3300 near-term, this would point to losses picking up more quickly.  Eyes would be on 1.3204 recent lows of 1.3040, as the Nov 3 low.