Today is the morning after the big night – the action has already happened, the party is over, and now everyone is quietly nursing their wounds or savouring their victories. Or is it? The important events are not fully over, as the Bank of England is holding a policy meeting today, which is of direct and strong material relevance to the market’s perception of the British Pound. A rate hike at the meeting today would be a major surprise. However, it is true that we probably have already seen the most important events that will affect the GBP/USD currency pair over the near term. Yet, it is too early to say the move is over, even though it might appear to be so at first glance.
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Fed Repricing Leaves GBP/USD Focused on the Bank of England
When the Forex market has just had really big news that causes it to reassess its view on the Fed’s monetary policy and what is behind the US Dollar – this is a good time to become interested in the Forex market, and this is where we are right now. Yesterday’s meeting of the US Federal Reserve not only brought the near-universally expected rate hike of 0.25%, it signalled that inflation remains a serious problem, that further tightening is likely (markets are now seeing a 53% chance of a hike in October), and that rates may stay higher through 2027 rather than begin falling next year. That forced markets to reprice the future path of US rates upward, lifting the US Dollar and short-dated Treasury yields.
Now this policy milestone has passed, institutions will feel more confident in placing big trades which can affect the direction of this and other currency pairs. Relevant the GBP/USD today is the Bank of England’s policy meeting. This might end with the market more bullish or bearish on the Pound, and that could trigger another significant price movement.
GBP/USD Holds Above 1.3369 After Its Bearish Channel Break
Yesterday’s Fed meeting caused the price to make a strong bearish breakdown from its descending price channel, which can be seen within the price chart below within the linear regression analysis towards the left. This strong and fast move lower has held without seeing a snap back, so it looks increasingly likely to hold up. However, since the initial move down, the price has respected the support level at 1.3369 after easily breaking through two other support levels which have become invalidated.
GBP/USD H1 Price Chart Showing Consolidation Above 1.3369
The resistance level at 1.3386 is also being respected for now. I am more doubtful about the resistance level which I locate at 1.3406, even though it is confluent with a round number at 1.3400.
The interpretation of the technical picture is clear: the Fed’s hawkish tilt has sent the US Dollar notably higher, and it is likely to remain strong and high, meaning that the price is likely to continue consolidating at these multi-week low prices, and might even travel lower, with a break below 1.3369 looking technically significant if it happens.
One note of caution for bears: the short-term price action is starting to look like a bullish “U” has been formed at a support level, suggesting a move higher in the coming hours.
Bank of England Guidance Could Challenge the Bearish GBP/USD View
The major risk that traders won’t be taking seriously enough is almost certainly going to come from the Bank of England, with an outside chance that a Fed member will say something that might cause the market to reprice its view of the US Dollar. If the Bank of England hikes rates now – unlikely but possible – or gives more hawkish rhetoric which leads to an expectation of rate hikes – then attention could shift towards that and away from the stronger US Dollar, causing the price to snap back.
I cannot think of any meaningful risk that could upset the mainstream views on this currency pair, there is nothing really to be concerned with except the two central banks.
Of course, price action can always turn higher and send the price back up to where it was.
Resistance Levels That Could Weaken GBP/USD’s Bearish Setup
At what point does the outlook become bullish? We can draw a few lines in the sand which look like good candidates to be pivotal points.
Firstly, the resistance at 1.3389 is holding, and as long as it continues to hold, that will be a sign that a further fall is likely to happen soon.
The next significant levels are the resistance at 1.3406, the inflection point at 1.3440, and finally the most significant level of all – the resistance at 1.3463.
If the price gets established above any of these, the bearish case gets weaker the higher the price goes today. If the price gets established above 1.3463 before the weekend close, that will be a significant bearish turnaround.
There is no question that fundamental and technical analysis leads today to a mostly bearish conclusion. We now have to see what happens after the London open, which is usually such a significant time for this currency pair. A rapid breakdown to new six-week lows will be a bearish sign, but if the first act after the London open is a move higher which breaks above at least 1.3389 then we will have to be prepared for a counter-trend move of unknown strength, although that will probably fade away as the Bank of England meeting approaches at lunchtime in the UK.
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