- GBP.USD has struggled to bounce off the lows amid some calm around Evergrande.
- A dovish stance from the Fed is critical for a more meaningful rally.
- Wednesday's four-hour chart is patining a bearish picture.
Will Britain join the North American free trade deal? That idea has been floated by the press. While such a move would make no geographical sense, it could boost UK-US trade and provide sterling a much-needed shot in the arm. Otherwise, GBP/USD is at the mercy of greater forces.
The safe-haven dollar is taking a modest breather from its gains as the Evergrande crisis has been kicked down the road. The Chinese construction behemoth is overwhelmed by debt but pledged to make good on a yuan-denominated payment due on Thursday.
The news boosted sentiment despite uncertainty about dollar obligations and ongoing contagion risks. Investors assume that Beijing is willing to prevent a Lehman-like crisis, but collateral damage from embattled companies is still a possibility that limits gains.
Caution in markets can also be explained by tensions ahead of Wednesday's Federal Reserve decision. The world's most powerful central bank is set to leave its policies unchanged but signal when and perhaps how it intends to taper its bond-buying scheme. The Fed creates $120 billion every month. Reducing purchases would boost the greenback while delaying such a move and spreading it out for a long time would weigh on the currency.
The US economy has been extending its recovery, creating jobs, and also pushing prices higher – but both the recent labor market figures and inflation reports have missed estimates. Fed Chair Jerome Powell's comments in the post-decision press conference and the new forecasts – especially for interest rates – are set to rock markets.
See
- Fed Preview: Three ways in which Powell could down the dollar, and none is the dot-plot
- Fed Interest Rate Decision: Can Powell calm the markets and propose a taper?
Overall, the pound is at the mercy of Powell.
GBP/USD Technical Analysis
Pound/dollar continues suffering from downside momentum and trades well below the 50, 100 and 200 Simple Moving Averages (SMAs). However, the Relative Strength Index is below 30, near oversold conditions. A bounce cannot be ruled out.
Immediate support awaits at 1.3630, the daily low. It is followed by 1.36, August's bottom, and then by 1.3570, last seen in July.
Resistance is at 1.360, Tuesday's peak, and then by 1.3730 and 1.3810.
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