Two-month-old ascending trend-line holds the key ahead of FOMC

• GBP/USD meets with some supply on Wednesday and erodes a part of the overnight gains.
• The USD holds steady near a two-week top and exerts some pressure ahead of the FOMC.
• Diminishing odds for more aggressive BoE rate hikes contributes to the modest downfall.

The GBP/USD pair struggles to capitalize on the previous day’s goodish recovery move from the vicinity of over a two-week low and attracts some sellers near the 1.2900 mark during the Asian session on Wednesday. Spot prices currently trade around the 1.2880-1.2875 region, down nearly 0.20% for the day, though the downside seems cushioned as traders keenly await the outcome of the highly-anticipated two-day FOMC policy meeting.

The Federal Reserve (Fed) is scheduled to announce its decision later this Wednesday and is widely anticipated to hike interest rates by 25 bps. Investors, however, remain sceptic if the US central bank will commit to a more dovish stance or stick to its forecast for a 50 bps rate hike by the end of this year. This, along with Tuesday’s upbeat Conference Board’s Consumer Confidence Index, assists the US Dollar (USD) to hold steady just below a two-week high. Apart from this, reduced bets for more aggressive policy tightening by the Bank of England (BoE) continue to undermine the British Pound (GBP) and exert some pressure on the GBP/USD pair.

From a technical perspective, spot prices earlier this week managed to defend an ascending trend-line extending from May’s swing low and stalled the recent sharp corrective decline from the highest level since April 2022 touched earlier this month. The said support, currently pegged around the 1.2800 mark, should act as a pivotal point for short-term traders. A convincing break below might shift the bias in favour of bearish traders and drag the GBP/USD pair to the 1.2755-1.2750 intermediate support en route to the 1.2700 level.

The latter is closely followed by the 50-day Simple Moving Average (SMA), currently around the 1.2675 region. Some follow-through selling could expose the 1.2600 mark before spot prices eventually drop to test the next relevant support near the 1.2530-1.2525 region.

On the flip side, movement above the 1.2900 round figure is likely to confront stiff resistance near the 1.2930 area, representing 38.2% Fibo. level. That said, a sustained strength beyond will suggest that the recent downtrend witnessed over the past two weeks or so has run its course. The GBP/USD pair might then aim to reclaim the 1.3000 psychological mark, also representing the 23.6% Fibo. level. The subsequent move-up has the potential to lift spot prices beyond the 1.3040 area, towards the 1.3100 round-figure mark.

GBP/USD daily chart

Key levels to watch