GBP/USD Forecast: A break from Brexit to focus on the Fed, better technical picture

The GBP/USD is stuck in a narrow range as the Fed decision is awaited.
Brexit headlines continue, but they need to be dramatic to move the pair.
The technical picture is improving for Sterling.

Yohay Elam FXStreet

The GBP/USD is trading in the upper half of the 1.3100 handle and not going anywhere fast. Range trading is typical to days when a top-tier event like the Fed decision is awaited.

The Federal Reserve will raise rates in a move that will not surprise markets. Officials have communicated the policy change. The forecast for interest rates, known as the dot-plot, will almost certainly signal yet another rate increase in December. The big unknown is the policy next year and afterward. Markets will likely focus on the projections for interest rates for 2019, 2020, 2021, and the long-term rate.

Will Fed Chair Powell drop its accommodative monetary policy and go for a tight one? This is the primary question. The monetary hawks are in control, the economy is growing quickly, and wages are on the rise. On the other hand, inflation recently dipped, and Trump's tariffs pose a risk.

See:

In the UK, the absence of top-tier economic gauges leaves the focus on Brexit. UK PM Theresa May stated on Tuesday that a no-deal Brexit is preferable over a Canada-style free-trade agreement, an option favored by the hard-Brexiteers. She is fending them off ahead of the Conservative Party conference which begins on Sunday.

Opposition leader Jeremy Corbyn will deliver his keynote speech at the Labour Party conference today. Party members are expected to open the door to a second referendum on EU membership. As the Tories do not command a majority in parliament, the opposition certainly matters.

The EU rejected Britain's Chequers proposal in the Salzburg Summit last week. Nevertheless, negotiations continue.

GBP/USD Technical Analysis

The GBP/USD managed to climb above the 50 Simple Moving Average and seems comfortable above it. This is a positive sign. However, Momentum still points tot he downside.

Support awaits at the round number of 1.3100 which supported the pair earlier in the week. 1.3055 was the low point on Friday and provides further support. 1.2980 was a trough in mid-September. It is followed by the gap line of 1.2940 recorded in early September.

Resistance is at 1.3195 that held cable down on Tuesday. 1.3225 provided support to the GBP/USD when it traded on high ground. 1.3300 was the high point last week.

More: GBP/USD Forecast: Is May just posturing ahead of the Conservative Conference? If so, there's a buying opportunity

Author

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

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