GBP/USD: Hints of tapering bond buys to extend cable's downtrend

GBP/USD has been retreating from the highs as tension mounts ahead of the Fed decision. Will Powell propel the pound higher or pummel it? Taper talk is the key, Yohay Elam, an Analyst at FXStreet, reports.

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The bias is bearish

“The US Federal Reserve is set to leave its policy unchanged but will have to acknowledge the improving economic environment in the US.”

“Every month, the Fed creates $120 billion to purchase bonds on markets. Before raising short-term rates, the Washington-based institution would gradually reduce its purchases. Powell and his colleagues can kick off such a process by signaling they would lay out a plan for tapering in June. If the Fed unleashes such a hint, GBP/USD would fall sharply. On the other hand, if he keeps his steady course and refrains from any signals, sterling would soar.” 

“Johnson's alleged comments of preferring ‘bodies piling up in the streets’ over a lockdown, disagreements over the Northern Irish protocol – and the pricing of Britain's successful campaign means sterling is vulnerable. In case markets are undecided about the Fed and the dollar's direction, GBP/USD could fall while others hold their ground against the greenback.”

“Pound/dollar has slipped below the 50 Simple Moving Average(SMA) on the four-hour chart, but it holds above the 100 and 200 SMAs. Upside momentum has disappeared, serving as another bearish sign. All in all, cable's strength is diminishing.” 

“Support awaits at the daily low of 1.3860, followed by 1.3820, a trough from last week. Resistance is at 1.3920, the peak on Tuesday, followed by 1.3950 and the all-important 1.40 level.”