GBP/USD Tests 50-Month Moving Average Ahead of Fed Decision

GBP/USD posted an eighth straight day of gains on Tuesday and is seen trading at resistance ahead of today’s Fed decision.

Investors have shrugged off concerns over the lack of progress in a trade deal between the UK and Europe. The pair has also diverged from its correlation with equities to extend higher while equities have moved sideways.

The Federal Reserve is not expected to act today, however, their view on the rise of Coronavirus cases will be important. The daily increase in virus cases reached a high above 75 thousand just over a week ago. By comparison, daily cases were around 17-20 thousand at the last Fed meeting.

A proposed fiscal stimulus package in the US takes the pressure off the Fed somewhat. Earlier in the week, the US announced plans of a stimulus package that is expected to be worth $1 trillion. The package includes another round of $1200 checks for US citizens although it entails a sharp cut to
emergency weekly unemployment benefits.

The UK housing market appears to be rebounding according to the latest report from the Bank of England. Data showed an increase of 40 thousand new mortgages approved for home purchases in June, ahead of the analyst estimate of 35 thousand.

Technical Analysis

A sharp decline in the dollar has been a major driver for all of the currency pairs as the trade-weighted dollar index touched fresh two-year lows earlier today.

GBP/USD has benefited from the weakness and is seen trading at its best level since March.

A confluence of resistance has come into play. On a daily chart, the 1.2959 price point was important in the last quarter of 2019. It held the exchange rate lower on several attempts during that time, leading to a lengthy consolidation.

Further, the 50-month moving average has come into play. While the overhead resistance is something to be mindful of, the pair has shown extremely strong upward momentum as of late, and near-term dips may still be quickly bought up.

Bottom Line

• GBP/USD is nearing the 1.3000 handle ahead of today’s Fed meeting.
• Major resistance is in play, although the pair has not shown signs of slowing momentum as of yet.

For a look at all of today’s economic events, check out our economic calendar.