GBP/USD forms ascending triangle ahead of Fed interest rate decision

Written by: Crispus Nyaga
January 27, 2021
  • The GBP/USD pair formed an ascending triangle pattern ahead of the FOMC decision.
  • The pair has been on an upward trend after BOE governor warned about negative rates.
  • The pair will next react to US GDP and spending and income data.

The GBP/USD retreated today after hitting its highest level in more than 2 years. The pair fell partly because of the overall strong US dollar ahead of the FOMC decision.

Stronger dollar ahead of FOMC

Earlier today, the British pound soared against its key peers like the euro, Japanese yen, and Australian dollar. Indeed, the GBP/CAD and GBP/CHF, and GBP/JPY are trading at the highest level in months.

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The strength of the British pound is mostly because of the recent strong economic data and the statement by Andrew Bailey, the BOE governor. Last week, after a BOE member advocated for negative interest rates, Bailey warned that the process would be more complicated.

Recent data suggests that the bank will take time before it implements such rates. For example, data by the Office of National Statistics (ONS) showed that the labour market is relatively resilient. The unemployment rate rose to 5.0%, better than the expected 5.1%. Also, last week, the office published relatively strong inflation numbers.

The GBP/USD has also rallied because of the strong demand for bonds issued by the Office of the Debt Management (ODM). The office sold bonds worth about 1.7 billion pounds that will mature in 2050. It also sold 2.9 billion worth of bonds that will mature in 2035. 

Looking ahead, the GBP/USD will react to the Federal Open Market Committee (FOMC) interest rate decision that will come out later today. The bank will most likely leave interest and quantitative easing policies unchanged. 

Later this week, the GBP/USD will react to the first reading of the fourth-quarter GDP data that will come out tomorrow. On Friday, investors in forex will focus on the US personal spending and income data and UK Nationwide house price index data.

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GBP/USD technical outlook

GBP/USD chart

The four-hour chart shows that the GBP/USD pair reached an important level of resistance today. Its highest point of 1.3750 is an area it has struggled to move above several times since last year. 

Also, the price has formed an ascending triangle pattern that’s shown in red. You can learn more about these patterns in our free forex trading course. It is also being supported by the 25-day and 15-day exponential moving averages. 

Therefore, while the pair is facing resistance, I predict that it will ultimately break-out higher as bulls eye the next resistance at 1.3800.