GBP/USD Forecast: "Once more at a Key Crossroads"

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The GBP/USD continues to pick itself up off the floor and is seen at 1.2900 in mid-week trade. Analyst and technical forecaster Richard Perry of Hantec Markets says while the near-term tenor has improved the medium-term outlook is less positive.

Coming into the Fed meeting today, we see GBP/USD once more at a key crossroads.

Overhead resistance is a key barrier this morning. Initially the trendlines, with a confluence resistance of a two week downtrend and the underside of the old six month uptrend coming in around 1.2900/1.2930.

Just overhead sits the key medium term overhead supply starting around 1.2980.

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There has been a notable improvement in the daily candlesticks in the past few sessions coming into the FOMC meeting, as the selling pressure on GBP/USD has stabilised.

However, given the breakdown of the six month uptrend, we see a far less positive medium term outlook now.

A failure to recover back into the 1.30s will sustain what we see as a neutral outlook between 1.2650/1.3000.

Expect elevated volatility today and how GBP/USD sits when the dust settles will be key.

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Major markets are settling in for a key announcement from the Federal Reserve today. After last week’s rebound (some of which driven by risk-off trading), the dollar has been gradually weakening again in recent sessions.

The perception is that the FOMC will take on board the sentiment from Fed chair Powell’s Jackson Hole speech and adopt a greater tolerance for inflation.

No changes are expected to rates, but will the door be opened to shifting the emphasis of asset purchases? The issues to look for today is how significant changes to the language in the FOMC statement will be.

Also, look for dovish shifts in the dot plot projections of economic forecasts, regarding inflation, growth and unemployment. Expect volatility on yields and the dollar. Signs of potential progress in US Congress over a fiscal relief package.

A $1.5trillion package does not appear to be getting too much agreement anywhere but could pave the way for further talks.

UK inflation has come in slightly ahead of expected in August, even if there was a significant drop.

The UK has avoided the fate of the Eurozone (which went into headline deflation recently). Essentially, all eyes are on the Fed today though.

Today's Calendar

The Fed looms large on the economic calendar today, but retail sales will also be keenly watched. First up though, is the Eurozone Trade Balance at 1000BST which is expected to see the surplus grow to +€19.3bn in July (from +€17.1bn in June).

US Retail Sales are at 1330BST and are expected to show core ex-Autos sales having grown by +0.9% in the month of August (after a +1.9% improvement in July).

The EIA Crude Oil Inventories are at 1530BST and are expected to show a stock build of +2.1m barrels (after a build of +2.0m barrels last week).

The FOMC monetary policy decision is at 1900BST with no change expected to the Fed Funds range of 0.00%/0.25%. The interest will be in how the FOMC accounts for the new average inflation targeting in the statement, and the FOMC dot plots.

Fed chair Powell has his press conference at 1930BST.