GBP/USD Daily Forecast – U.S. Dollar Under Pressure Ahead Of Fed Rate Decision
British Pound Enjoys Strong Support
GBP/USD continues its upside move as markets await Fed Interest Rate Decision and commentary from Jerome Powell.
The U.S. Dollar Index, which measures the strength of the U.S. dollar against a broad basket of currencies, has settled near support at 93.5.
This is an important level for the American currency since a move below the support at 93.5 will likely lead to increased downside momentum. This scenario is bullish for GBP/USD.
While the Fed is expected to leave the interest rate unchanged, traders will focus on Powell’s commentary.
Yesterday, CB Consumer Confidence report showed a decline from 98.3 in June to 92.6 in July. The rising number of coronavirus cases and uncertainty regarding future unemployment benefits have put pressure on the consumer who is a key driver of the U.S. economy.
Meanwhile, Republicans and Democrats continue negotiations on the new coronavirus aid package. Republicans have proposed a $1 trillion package but Democrats believe that it is too small. Making negotiations more complex, some Republicans oppose the bill because it is too expensive.
These developments put additional pressure on the Fed which should reassure the markets that it has enough firepower to help the economy if recovery stalls.
This is a very important moment for the U.S. dollar since an extremely dovish commentary from the Fed may cause an additional sell-off. If the Fed stays cautious and does not commit to additional stimulus, the U.S. dollar will likely rebound.
Technical Analysis
GBP/USD has managed to settle above the resistance level at 1.2900 and continues to move higher.
The next resistance for GBP/USD is located at 1.2980. In case GBP/USD moves above this resistance level, it will continue the current upside trend and head towards the next resistance level at 1.3070.
On the support side, the previous resistance at 1.2900 will likely serve as the first support level for GBP/USD.
A move below this support level will open the way to the test of the next support level at 1.2815.
I’d note that GBP/USD continues to move higher in a tight upside channel while RSI has reached the overbought territory, increasing chances for a pullback.
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