Yesterday, the British pound was trading activity despite an almost empty economic calendar. Such robust trading was associated with the meeting of the Federal Open Market Committee.
At first, it was widely speculated in the media that the Fed would raise the rate at its meeting on Jan. 25-26. Driven by these expectations, the US dollar gained strength.
But at the start of the North American session, market sentiment changed sharply due to the recent reports according to which the first rate hike was likely to be in March. Meanwhile, at its meeting in January, the FOMC is expected to specify the timing of the monetary policy tightening. Apparently, this is exactly what will happen. One of the main issues for the Fed is the stock market bubble. If the regulator raises the rates right now, the market will collapse.
So, market participants need time to get ready for the rate hike, and this is an ongoing process. The US Federal Reserve is unlikely to take the risk and tighten the policy at the current meeting. Most probably, the central bank officials will announce that the first rate hike will take place this spring, without stating the exact date. By the way, two policy meetings, one in March and one in April, will take place this spring.
This will ensure that markets have enough time to prepare for changes, while the Fed has some room for manoeuver. In case markets are not ready by early March, the decision on the rate hike will be postponed until April. Ahead of the meeting, the US dollar will most likely advance amid various speculations. However, right after it, the US currency will rapidly decline.
The GBP/USD pair slowed down the pace of decline near the level of 1.3440 from where the price pulled back after a short flat movement. Despite a small price change over the past 24 hours, the downtrend still prevails in the market. The fact that the US dollar recovered by more than a half against the pound confirms the bearish trend on the pair.
The RSI technical tool rebounded from the oversold zone on the 4-hour time frame, signaling that trading sentiment is changing.
At the same time, the indicator is holding near the lower area of 30/50 which proves bearish bias in the market.
The Alligator indicator on D1 crosses the moving averages, meaning that the upward cycle is coming to an end. On H4, the indicator also confirms the signal to sell the pound.
Outlook and forecast
At the moment, there is still a technical pullback on the chart which is viewed as a short-term event by traders. Consolidation below 1.3435 can provoke an increase in the volume of short positions.
Comprehensive indicator analysis generates a buy signal on the short-term and intraday charts due to the current pullback. In the medium term, a buy signal is replaced by a sell one.
InstaForex Group
