GBP to USD Forecasts: A Return to $1.2550 in the Hands of the Fed

It is a quiet day ahead for the GBP/USD. There are no UK economic indicators to consider through the UK morning session.

The lack of stats will leave the GBP/USD in the hands of market risk sentiment before the US session. Improved market risk sentiment through the early hours delivered GBP/USD support.

However, the US banking sector and the US Government Debt ceiling remain headwinds as investors await the Fed monetary policy decision and the BoE interest rate decision on May 11.

With no stats to consider and monetary policy in focus, investors should monitor Bank of England chatter. However, no MPC members are on the calendar to speak today, leaving investors to track commentary with the media.

GBP to USD Price Action

This morning, the GBP/USD was up 0.19% to $1.24908. A mixed start to the day saw the GBP/USD fall to an early low of $1.24596 before rising to a high of $1.24934.

Technical Indicators

Resistance & Support Levels

The Pound needs to avoid the $1.2471 pivot to target the First Major Resistance Level (R1) at $1.2507 and the Tuesday high of $1.25122. A return to $1.25 would signal an extended breakout session. However, the Pound would need US economic indicators and the Fed to support a breakout session.

In the event of an extended rally, the GBP/USD would likely test the Second Major Resistance Level (R2) at $1.2548. The Third Major Resistance Level sits at $1.2625.

A fall through the pivot would bring the First Major Support Level (S1) at $1.2431 into play. However, barring a Fed-fueled sell-off, the GBP/USD should avoid sub-$1.24 and the Second Major Support Level (S2) at $1.2395. The Third Major Support Level (S3) sits at $1.2318.

Looking at the EMAs and the 4-hourly chart, the EMAs send bullish signals. The GBP/USD sits above the 50-day EMA, currently at $1.24768. The 50-day EMA pulled away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A hold above the 50-day EMA ($1.24768) would support a breakout from R1 ($1.2507) to give the bulls a run at R2 ($1.2548). However, a fall through the 50-day EMA ($1.24768) would bring the 100-day EMA ($1.24490) and S1 ($1.2431) into view. A fall through the 50-day EMA would send a bearish signal.

The US Session

Looking ahead to the US session, it is a busy day on the US economic calendar. The US ADP nonfarm employment change and the all-important ISM Non-Manufacturing PMI will be in focus.

While the markets will consider the stats, the Fed will be the focal point. Investors expect a 25-basis point Fed interest rate hike. However, there is a high degree of uncertainty on whether the Fed will aim to deliver another 25-basis point hike in June.

After the latest Core PCE Price Index numbers, today’s stats could influence the decision.

Economists forecast the ADP to report a 150k increase in nonfarm payrolls and for the ISM Non-Manufacturing PMI to rise from 51.2 to 51.8.