Weekly Outlook: GBP/USD eyes 1.6500 amid Fed tapering decision

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GBP/USD on Thursday closed with a nice-looking shooting star daily candle, which signals significant downside risk. Huge volatility is expected in the pair during this week as the fundamental baskets of both the UK and the US are filled with some high profile macro-economic events. In addition, investors will also keep a close eye on the Russia-West confrontation.

Technical Analysis

Cable closed last week at 1.6640. The pair has formed a classic double top pattern on the daily chart. The neckline of the pattern, at 1.6567, has also been broken last week. A breakout through the double top neckline is considered a strong bearish signal among traders. The pair is expected to test the major channel support around 1.6500; a breakout through the channel support shall open doors for further downside movement towards the 1.6350 support area.

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On the upside, the pair might test the double top resistance area around 1.6785-6821. A break and daily close above the resistance area could result into fresh multi-year highs above 1.6850, potentially targeting the 1.7000 milestone.

BoE Monetary Policy

On Wednesday, the Bank of England (BoE) is scheduled to announce the Monetary Policy Committee (MPC) decision on the pace of the stimulus. According to the forecast of different analysts, MPC is expected to keep the stimulus unchanged. The same day, BoE is due to release minutes from the monetary policy meeting. The hawkish conclusion, in the minutes, will be seen as bullish for the pair and vice versa.

US Inflation Data

 On Tuesday, the US Labor Department is due to release the monthly Consumer Price Index (CPI) report –a key gauge for inflation—for the month of February. The CPI dropped to 1.2% in February as compared to 1.6% in the same month of the year before, according to the median projection of various analysts. However, the CPI excluding food & energy prices – relatively more reliable gauge for inflation— remained steady at 1.6% in February as compared to the same reading in the same duration of the previous year, the forecast added. Better than expected US data will be seen as bearish for GBP/USD and vice versa.

Fed Tapering Decision

On Wednesday, the Federal Reserve is due to announce its decision on the pace of the monthly stimulus worth $65 billion. Tough it’s high speculative but keeping in view the surprise jump in the February nonfarm payrolls, it is very likely that the US central bank might announce yet another cut in the stimulus by $10 billion. If it happens, then GBP/USD could come under strong selling pressure. The same day, Fed monetary policy statement and press conference are also scheduled. Investors will be monitoring the central bank’s forward guidance stance very closely

Conclusion

In a nutshell, the BoE is expected to keep the monetary policy unchanged while the Federal Reserve might consider another cut in the stimulus. The US tapering decision might accelerate the downside risk in cable, thus dragging the price towards 1.6500 or even below.

To contact the writer of this story: Usman Ahmed at usman@forexminute.com