June 16 2021
Today the worlds financial markets are full of expectations. Waiting for the release of the US Federal Reserves statement. With economists hoping the Fed will show some clues as to when the US will start to raise interest rates. The dot plots will be of most interest to them and the market at this point.
Then 30 minutes later, the Federal Reserve Chair Jerome Powell will hold his press conference. Will the arch dove do a U-turn? I don’t think so.
The best we can hope for will be a more upbeat assessment of the US economy. Plus some comments that he is thinking about thinking to taper soon.
Thinking about tapering some time soon, is going to have a mildly negative effect on stock and bond prices, the question is will it help the dollar much?
As I don’t believe there is going to be anything specific to come out of this meeting. The mildly bullish outcome on the dot plots will cause an initial surge in the US dollar. This will be followed by a post-press conference sell-off in frustration that nothing much has changed.
The GBP saw an attempt to break support at 1.4080 yesterday. The break looks like it can’t be sustained, as It was no surprise because the UK Government had telegraphed the news about pandemic restrictions not being lifted over several days. When PM Johnson made his announcement of postponing pandemic freedom day for a month. No one was surprised, so the market impact was negligible. GBP traders had plenty of time to adjust positions and saw the dip to 1.4040 as an opportunity to buy.
Whether we get another chance to buy the dip today will be up to the Fed tonight, although we shouldn’t forget that UK CPI is released and expected to headline at 1.8% for May. Although, today’s big moves will be all about the dollar.
In usual trading conditions after yesterdays price action, I would expect the GBPUSD to be above 1.4100 by now. However, we are in the pre-Fed price freeze, and everything moves in slow motion. So although we remain Bullish, our resolve could be tested with further dips towards support at 1.4020 or even 1.3980.
However, once the FOMC dust has settled, we expect resistance to be tested first at 1.4130, then 1.4180. and possibly 1.4200 to 1.4250 in days to come.
We remain GBP bullish in the medium term. However, you have to be flexible as the market is not going to be a straight line to 1.50. So ensure you use risk management to protect yourself from adverse market movement.