GBP/USD and a Return to Sub-$1.1350 Rests in the Hands of the Fed

It is a quiet day for the GBP/USD. According to the economic calendar, no UK economic indicators are due to provide direction to the Pound. The lack of stats will continue to leave the market focused on the UK government and tomorrow’s Bank of England monetary policy decision.

Having failed to revisit $1.16 on Tuesday, uncertainty over the BoE’s plans will continue to peg the Pound back from a breakout. The UK government’s plans to balance the books will form a part of the Bank’s decision-making process.

As things stand, economic indicators from the UK and the US place monetary policy divergence in favor of the dollar. However, things could change today, with the FOMC interest rate decision and press conference late in the session.

No Bank of England Monetary Policy Committee members will deliver speeches ahead of the Thursday policy decision, leaving the Fed Chair to do the talking.

GBP/USD Price Action

At the time of writing, the Pound was up 0.24% to $1.15083. A mixed morning saw the GBP/USD fall to an early low of $1.14728 before rising to a high of $1.15269.

Technical Indicators

The Pound needs to avoid the $1.1495 pivot to target the First Major Resistance Level (R1) at $1.1552 and the Tuesday high of $1.15661. A move through $1.1550 would signal a bullish session.

In the case of a Fed-fueled extended rally, the GBP/USD would likely test the Second Major Resistance Level (R2) at $1.1624. The Third Major Resistance Level (R3) sits at $1.1753.

A fall through the pivot would bring the First Major Support Level (S1) at $1.1423 in play. However, barring another sell-off, the Pound would likely avoid sub-$1.1350. The Second Major Support Level (S2) at $1.1365 should limit the downside.

The Third Major Support Level (S3) sits at $1.1236.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The GBP/USD sits above the 50-day EMA, currently at $1.14633. The 50-day EMA widened from the 200-day EMA, with the 100-day EMA pulling away from the 200-day EMA, delivering bullish signals.

A hold above the 50-day EMA ($1.14633) would support a breakout from R1 ($1.1552) to target R2 ($1.1624). However, a fall through the 50-day EMA would bring S1 ($1.1423) and sub-$1.14 into play.

The US Session

It is a big day ahead on the US economic calendar. US stats include ADP nonfarm employment change numbers that will draw attention. A sharp increase in payrolls could reverse bets of a December pivot.

However, the main event is the Fed monetary policy decision and press conference. A 75-basis point rate hike would shift focus to the Fed’s plans for December. With the markets betting on a December pivot, talk of another 75-basis point rate hike would hit the NASDAQ Composite Index and the S&P 500 and drive dollar demand.

No FOMC members will speak to guide the markets following today’s stats. The FOMC blackout period started on Saturday and will extend until November 3.

Going into the Wednesday session, the FedWatch Tool had the probability of November and December rate hikes at 90.2% and 47.6%, respectively. One week ago, the likelihood of a 75-basis point hike in December stood at 35.6%.