GBP/USD Slice Through 1.3550, Brace for US FOMC Meeting Minutes
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- The UK was struggling with the rising number of coronavirus cases in the country due to the rapid spread of the Omicron variant.
- FOMC meeting minutes from the Federal Reserve policymaking will be the main highlight of the day.
- GBP/USD traded bullish to reach above the 1.3550 level, but candles above the 1.3525 signal the chances of uptrend continuation.
On Wednesday, the GBP/USD was trading with a strong bullish bias at the 1.3552 level ahead of the US FOMC Meeting Minutes. The day before, GBP/USD closed at $1.3532 after placing a high of $1.3558 and a low of $1.3458. GBP/USD reversed its course on Tuesday and turned green to recover all of its previous session’s loss.
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COVID-19 fears – Omicron variant in focus
GBP/USD rose in response to improved market sentiment, which was fueled by a reduction in concerns about the Omicron variant and the Federal Reserve’s expected three rate hikes in 2022. The market participants were focusing more on the bright side of the situation in Britain. The UK is struggling with the rising number of coronavirus cases in the country due to the rapid spread of the Omicron variant. However, the news that it causes less severity than the Delta variant eased concerns in the market and supported riskier currencies like Sterling.
The government of the UK has taken extreme measures to control the coronavirus situation in the country. Despite the increased hospitalization and coronavirus case numbers, the UK government has shown no interest in imposing tight restrictions and supporting Sterling as well.
A quick economic event outlook
On the data front, at 05:01 GMT, the BRC Shop Price Index for the year surged to 0.8%, up from the previous 0.3%. At 14:30 GMT, the final manufacturing PMI remained flat with anticipation of 57.6. The M4 money supply surged to 0.7%, against the forecasted 0.5%, and supported the British pound. Mortgage approvals remained flat at 67K. At 14:32 GMT, the net lending to individuals surged to 4.9 billion against the expected 3.9 billion and supported the British pound. The majority of British data came in favor of the pound, pushing the GBP/USD higher.
The dollar weakens amid worse than expected economic events
From the US side, at 20:00 GMT, the ISM Manufacturing PMI was reduced to 58.7 from the anticipated 60.0 and weighed on the dollar. The JOLTS job openings also fell to 10.56 million, versus the expected 11.06 million, weighing on the US dollar. The ISM Manufacturing Price Index fell to 68.2 from 79.3 expected, weighing on the US dollar. The US data came against the dollar, which ultimately pushed GBP/USD to the upside on Tuesday.
On the other hand, market participants were also optimistic that global sentiment would improve. Especially after the US central bank announced its expected rate hikes this year. Despite the unfavorable economic data from the US, market participants were highly confident about the rate hike, which ultimately kept risk sentiment alive and supported the GBP/USD pair on Tuesday.
What to expect from US FOMC Meeting Minutes?
The minutes of the FOMC meeting will reinforce the Fed’s view. Today, the FOMC meeting minutes from the Federal Reserve policymaking will be the main highlight of the day. They’ll provide additional information about the Fed’s 2022 intentions, including faster tapering and at least three rate hikes.
“Economic activity is on track to expand at a healthy rate this year, reflecting progress on vaccinations and the reopening of the economy,” Federal Reserve chair Jerome Powell stated in December. “In my opinion, we are rapidly approaching full employment.”
The motive for the Fed’s increased action is not related to jobs. It’s none other than our old pal inflation. At the time of writing, the United States’ inflation rate was 6.8 percent, the highest in 40 years.
In response, the Fed will begin winding down its $120 billion bond-buying programs in January at a rate of $30 billion per month. Then there are the rate increases. The consensus seems to be that the Fed will authorize three rate hikes in 2022, three more in the year 2023, and two more in 2024. So there will be a lot of rate action to keep an eye on.
The timing of any rate changes has yet to be determined, but Powell stated that the first might occur sooner rather than later.
The Fed Chair stated in December, “The economy is so much stronger now, so much closer to full employment, inflation is running well above target, and growth is running well beyond potential.” There would be no need for a lengthy delay. ” Today’s great question is whether the United States can absorb all of these changes and hikes without getting sick.
Daily Technical Levels
Support Resistance
1.3474 1.3574
1.3416 1.3616
1.3373 1.3674
Pivot Point: 1.3516
GBP/USD slice through 1.3550 resistance – Uptrend to continue
The GBP/USD traded bullish to reach above the 1.3550 level, but the closing of candles above the 1.3525 resistance signals the chances of uptrend continuation. The GBP/USD pair surged during the early European hours and closed above 1.3525, right above the resistance that became support. The pair has formed a tweezer bottom on the 4-hourly timeframe, supporting the chances of an uptrend continuation in GBP/USD.
The GBP/USD pair may find immediate resistance at 1.3560 or 1.3595 levels on the bullish side. Taking a look at the leading technical indicator such as the RSI, it’s holding near 70, indicating solid uptrends in the GBP/USD pair. At the same time, GBP/USD retests and closes above the 1.3450 support zone, which is extended by an upward trendline. Thus, the odds of an upward movement remain solid.
Alternatively, a break below the 1.3450 support level could allow further room for selling until the 1.3384 and 1.3324 support levels are reached. Good luck, and stay tuned for more updates!
