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Spotlight on Evergrande and the FOMC

  • The Fed is currently buying $120 billion in assets per month, with $80 billion in treasuries and $40 billion in mortgage-backed securities (MBS).
  • On Wednesday, the GBP/USD is trading bearish at $1.3642 amid the spotlight on Evergrande and the FOMC.
  • Forex trading market participants may sell below the $1.3680 level to target $1.3602 and $1.3555.

The day before, GBP/USD was closed at $1.3659 after setting a high of $1.3693 and a low of $1.3641. GBP/USD fell for the fourth consecutive session. Thus, reaching its lowest level since August 23 due to recent risk-off market sentiment and investor caution. On Wednesday, the GBP/USD is trading bearish at $1.3642 amid the spotlight on Evergrande and the FOMC.

If you are interested in trading GBP/USD with forex robots, check out our guide.

The price of GBP/USD remained near its four-week lowest level on Tuesday as investors awaited the outcomes of both the Bank of England and the US Federal Reserve meetings this week. Furthermore, the risk-sentiment of the market was also deteriorated by the debt troubles faced by the Chinese real estate giant Evergrande.

During early trading hours on Tuesday, the currency pair GBP/USD managed to recover some portion of its loss amid the support received from a record $137 billion demand for the green government bond by the UK, amounting to $10 billion. However, the gains could not remain for long and failed to turn the bearish pressure as the risk-off market sentiment was intense due to the Delta variant spread and the concerns about potential economic repercussions from Evergrande’s debt problems.

Concerns about Evergrande weigh on the GBP/USD.

The GBP/USD was down on Tuesday mainly because the whole market mood was negative due to Evergrande. The company’s announcement that it might not repay its debts this month connected to its $300 billion of borrowings dragged Wall Street to its most significant decline since May on Monday. 

The currency pair GBP/USD is a risk-correlated currency pair directly associated with the events driving global equity prices. The fact that Evergrande was moving closer to its debt payment deadline on Thursday had a huge impact on GBP/USD as it prompted risk-off market sentiment.

A Quick Economic Data Review

On the other hand, at 11:00 GMT, the Public Sector Net Borrowing from August increased to 19.8B, exceeding the forecasted 14.5B, weighing on the British Pound and adding to the GBP/USD loss. At 15:00 GMT, the CBI Industrial Order Expectations rose to 22, up from 15, and supported the British Pound, preventing further losses in GBP/USD.

From the US side, at 17:30 GMT, the building permits from August rose to 1.73M against the predicted 1.60M, supported the US dollar, and added to the further decline in GBP/USD. From June, the Current Account showed a balance of -190B against the projected -193B, supported the US dollar, and dragged GBP/USD further to the downside. In August, the number of housing starts increased to 1.62 million, up from 1.55 million expected, supporting the US dollar and adding to GBP/USD losses.

What to expect from the Federal Reserve FOMC Meeting?

It’s finally here, after months and months of conjecture. The FOMC is meeting for two days, and it is widely expected that they will reveal soon that they will begin cutting down their asset purchases.

How much to taper?

Then there’s the question of how much to taper, and it’s becoming a more important component in the markets. The Fed is currently buying $120 billion in assets per month, with $80 billion in treasuries and $40 billion in mortgage-backed securities (MBS).

The Fed could sway markets by hinting at how much they will taper. However, it is widely assumed that the Fed will defer action on this until a later meeting. In any case, it appears that the Fed will begin tapering by $15 billion per month, including $10 billion in Treasury bonds and $5 billion in MBS.

Spotlight on Evergrande and the FOMC
GBP/USD 4-Hour Timeframe

GBP/USD Price Forecast – Daily Support and Resistance

Support Resistance

1.3635 1.3687

1.3611 1.3717

1.3582 1.3740

Pivot Point: 1.3664

GBP/USD Price Forecast – Spotlight on Evergrande and the FOMC

On Wednesday, the GBP/USD is trading bearish at $1.3642 amid the spotlight on Evergrande and the FOMC. The GBP/USD faces the next resistance at the 1.3685 mark; a 50-day exponential moving average extends this particular resistance mark.

A bullish crossover over this 50 EMA can move the currency pair towards the next resistance level of the 1.3757 mark. A previously violated support level is extending this particular 1.3757 trading level. For now, it’s working as a resistance for the GBP/USD. Besides, a buying trend continuation over the 1.3757 level could stretch upward trends till the 1.3717 resistance mark.

On the lower front, the immediate support prevails at the 1.3602 level. This particular level is extended by a previously placed low level on August 20. Nevertheless, if GBP/USD breaks below the 1.3602 level, the next support will prevail at 1.3565. On the other hand, the 50-period exponential moving average and the RSI indicator suggest a selling bias in the GBP/USD pair.

Therefore, Forex trading market participants may sell below the $1.3680 level to target $1.3602 and $1.3555. Alternatively, traders can take a buy position above the $1.3685 level today. All the best!

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