Markets remain cautious as the highly anticipated FOMC rate decision approaches. Major pairs are remaining in tight range. Economists generally expect a 50bps cut from Fed today bringing the federals rate down to 3.00%. Note that such a move will bring the US rates closer to the Japan (0.50%) then to Australia (6.75%) and the US rates will then be at 1 percent point lower than ECB's rate of 4.00%. While interest rate futures are pricing in a 70% chance of a 50bps cut and 30% chance of a 25bps cut, this is not a done deal, considering the Fed has already cut 75bps last week and the financial markets has somewhat stabilized since then.
In addition to the actual announcement, the vote split as well as the accompany statement will be closely watched. Poole dissented last week's cut as he did not believe that current conditions justified policy action before the regularly scheduled meeting this week. Poole may vote against the rate cut again this time. The statement, as usual will be heavily scrutinized for hints on next policy change. In particular, markets will look into chance in Fed's description of the financial markets. The Fed said that broader financial market conditions have continued to deteriorate and credit has tightened further in last week's statement.
After all, given the various possibilities of today's outcome, reactions in the markets is hard to predict, especially considering the sell on news position squaring. But much volatility is anticipated.
Also, note that in before the FOMC rate announcement, Q4 GDP and ADP employment report could trigger one round of volatility first. Q4 GDP in US is expected to slow sharply from 4.9% annualized rate to 1.2%. ADP employment, often used as preview to Non-Farm payroll, is expected to show 45k job growth.
GBP/USD Daily Outlook
Daily Pivots: (S1) 1.9826; (P) 1.9877; (R1) 1.9944; More
Cable remains firm even though upside momentum continues to diminish. Further rally is still expected as long as 1.9730 support holds. As discussed before, sustained break of mentioned falling channel resistance will indicate that whole fall from 2.1161 has completed at 1.9337 on bullish convergence condition in 4 hours MACD and RSI. Stronger rally should the be seen to 2.0099 resistance first. However, below 1.9730 will indicate an intraday top is in place and bring pull back. Though, further rally is still expected as long as pull back is contained above 1.9464 support.
In the bigger picture, prior break of medium term rising channel and 2.0 psychological support at least indicate that rise from 1.8090 has already completed at 2.1161. With 55 weeks EMA taken out too, it's likely that the medium term up trend from 1.7047 has also completed. Deeper medium term decline is expected towards 61.8% retracement of 1.7047 to 2.1161 at 1.8619.
Though, sustained break of the short term falling channel will indicate that whole decline from 2.1161 has completed. Stronger short term rally should then be seen, probably to retest prior medium term channel support turned resistance (now at 2.0284) before resuming the medium term fall from 2.1161.