GBP/USD: holds a strong technical bias despite 2019 hawkish FOMC, 1.4160 next?

GBP/USD spiked on the knee-jerk reaction to the FOMC announcements to a high of 1.4104 and then reversed back to test the rising 5-min 100 SMA at 1.4064. The Fed raised their target interest rate to 1.50-1.75 pct and sees two more rate hikes this year for a total of three, not four, (sees three more in 2019, that were previously at just two hikes).

• Raises view of estimated neutral fed funds rate following years in which it lowered estimates.
• Median projection sees fed funds rate at 2.875 pct at end-2019 compared with 2.688 pct in dec forecast.
• Says economic outlook has strengthened in recent months.
• Says inflation on 12-month basis is expected to move up in coming months.
• Says economic activity has been rising at 'moderate rate;' previously described rate as 'solid'.
• Says job gains have been strong; growth rates of household spending and fixed investment have moderated.
• Repeats near-term risks to the economy appear "Roughly balanced".
• Fed vote in favor of policy was unanimous.

Despite the miss in CPI expectations yesterday where UK CPI slipped to 2.7% in Feb (from 3.0% in Jan and against market expectations for a drop to 2.8%. PPI input and factory gate prices were also below forecasts for the month), initially denting the pound's advance, the pound remains resilient underpinned by movement in Brexit negotiations this week. Also, sterling garnered additional support from today’s UK wage data that was showing a 2.8% gain in the average earnings to 2.8% (highest since late 2015) and a move lower in the ILO unemployment rate. 

BoE on the cards this week

Markets now look ahead to Thursday’s retail sales report and the BoE, both due on Thursday. The backdrop of the wages data supports the idea of the BoE tightening rates modestly in the next few months (note 19bps of tightening factored in for May). 

GBP/USD levels

Sustaining the break out from the 2018 consolidation (bull wedge pattern), GBP/USD now has eyes set on a break of the 1.41 figure with closes on the handle. A sustained move higher and closes above 1.4160 opens up 1.4250/1.4350 levels - (200-W SMA is located at 1.4288). On the flip side, the descending resistance comes as a key support within the reversal from Feb 28th 1.3711 recent lows. A deeper support below the trend line comes in at 1.3890/10, (21-D SMA) and lower, 1.3840. The Feb 9th low is at 1.3765 and that guards the 1.3658 September peak and the 1.3479 2016-2018.