As markets are waiting for the outcome of the FOMC meeting, it is hardly surprising that the pound has frozen in anticipation. The flat movement is likely to continue until the results of the meeting are announced at the press conference. Two scenarios are possible here.
In the first one, the Fed will announce the gradual tapering of its QE program that is expected to start in November. The US Federal Reserve should announce this decision in advance. The regulator has been preparing the markets for such a scenario for the past few months. This will definitely support the US dollar which will resume its uptrend amid declining supply. According to the law of supply and demand, if there is a decrease in the supply of goods, their price is inevitably rising. Besides, the scale of the reduction of asset purchases is not that important as it will anyway prompt the US dollar growth.
Although the second scenario is the opposite, it is unlikely to bring any drastic changes. The Fed may delay its decision until the next meeting in November. In this case, the greenback will start to depreciate while the pound will show moderate growth since the QE reduction is inevitable. The Fed officials have mentioned this several times, and even those who opposed this view during the September meeting agree that policy tightening is necessary. Thus, markets will simply get extra time to prepare for changes.
The GBP/USD pair has slowed its downtrend near 1.3640 where it initiated a rebound and then got stuck in the range between 1.3640 and 1.3690. Although the pound has been largely oversold, market participants are still bearish on the pair. Several technical factors confirm the trend, including the lack of correction, the slowdown process, and the RSI moving along the oversold zone.
On the daily chart, we can observe that the US dollar has recovered by almost 87% from its correction that took place between Aug. 23 and Sept. 3.
Outlook
The oversold status of the sterling may be easily downplayed by traders. If the price holds below the level of 1.3640, it may then move towards the area of 1.3600-1.3571.
We should take into account that speculative mood is highly likely today amid a strong news background. This, in turn, may result in sharp price fluctuations within a short period of time.
Comprehensive indicator analysis confirms a sell signal on the short-term and intraday time frames as the price has consolidated near the lower boundary of the downward channel.
InstaForex Group