GBP/USD is up nearly 0.3% to 1.3935 to start the day
The pair is continuing a solid rebound from the lows last week, helped today by a softer dollar post-FOMC, notably pushing past its 100-day moving average (red line) @ 1.3919.
As such, buyers are exerting more control and the daily close today will be an important one to watch. Hold above the 100-day moving average and the bias in the pair turns more bullish, with buyers to set their sights on the 1.4000 handle next.
Now, that is when things really get interesting for cable in my view.
The dollar is weaker now as the market sees the Fed as not taking a hawkish step towards officiating taper discussions but while it didn’t come yesterday, it is only but a matter of time – assuming that economic developments keep more positive.
I’d argue that would limit any material dollar weakness but it will be tough to argue with the technicals as well, if it does play out in a significant way.
A push back above 1.4000 sees little in the way of a move towards 1.4200 again but failure to break 1.4000 could see renewed downside pressure in cable, particularly if the dollar holds up and the BOE sits on its hands at next week’s policy meeting.
On the latter, with the UK government sticking with self-isolation restrictions for now (until 16 August), it would be prudent for the BOE to wait on more clarity on that and how the virus situation is playing out before signaling any major hawkish message.
That said, one can’t really rule out any surprises so just be wary in any case.
Going back to cable price action, buyers are looking to try and keep a push back towards 1.4000 for now. If able to, it will be make-or-break time for cable in deciding on the next key directional move for the pair.