The financial markets are on something of a knife edge ahead of the September Federal Reserve meeting. At the same time, the GBP/USD currency pair is in a tricky position. Most observers now expect the Federal Reserve to hold interest rates steady. Either a hawkish or dovish revised dot plot and guidance would move market sentiment tremendously. Next up, let’s focus on the GBP/USD. Can it recover its former balance at 1.3535, or is it doomed to keep descending to lower targets?
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Market Dynamics and Interest Rate Expectations
The financial community has been hanging on the Federal Reserve’s every word when it comes to interest rates as we approach their September meeting. The central bank’s decision to potentially begin easing monetary policy later this year could have far-reaching effects on currency pairs, particularly GBP/USD. According to recent data from the U.S. Consumer Price Index (CPI), inflation is softening considerably. This change gets inflation more in line with the Fed’s long-term targets and potentially sets the stage for future easing actions.
Yet in this context, the market’s focus is squarely on the dollar’s performance. It now flirts with an important resistance barrier on the four-hour chart. The retest levels around 98.60 may serve as a possible top. Traders are nervously looking to see how the dollar will react after the promise of more specific guidance from the Federal Reserve. We think this announcement has the potential to reshape the entire trading market in the days ahead.
Technical Analysis of GBP/USD
The GBP/USD currency pair is running into a hefty technical headwind as it continues to work its way back through recent price history. A deeper drop down to 1.3280 might unfold. This is particularly true if there is increasing risk aversion, or if the U.S. dollar becomes stronger. Conversely, if the pair maintains above the recently formed bearish Fair Value Gap (FVG) of 1.34378 to 1.34655, it could indicate a possible upside, coming together to potentially provide a recipe for a slow, steady increase in the market.
What once was minor previous support now is resistance at 1.3520, telling traders to use extra caution here. If GBP/USD is able to hold above the recent FVG and reclaim those levels, it may point to momentum changing direction. Whether this change is enough to see USDCNH float higher over time remains to be seen.
Implications for Traders
The next Federal Reserve meeting is the key event to watch for all traders with an interest in trading GBP/USD. As interest rate hikes continue to be questioned and economic advice becomes harder to come by, market players need to be on their toes. How the dollar behaves around these key resistance levels will be key in deciding short-term direction for GBP/USD.
Should traders observe any signaling from the Fed that indicates a more aggressive stance towards easing or maintaining current rates, adjustments in trading strategies may be warranted. Today’s rapidly changing energy landscape demands close scrutiny of predictive technical analysis paired with macroeconomic data to better inform the path ahead.