GBP USD bounces in Fed aftermath but remains pressured

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.

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.

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