GBP/USD Update: 1.2300 Handle Holds Firm as Markets Take a Breather Before the FOMC Meeting

GBP/USD PRICE, CHARTS and ANALYSIS:

GBP/USD FUNDAMENTAL BACKDROP

Cable failed to recover any ground surrendered to the greenback yesterday, as sideways price action dominated the Asian and early European sessions. Yesterdays selloff in GBP/USD saw the pair find support at the 1.2300 level ahead of a big day on the data and macroeconomic front.

This morning saw the release of Nationwide housing price data out of the UK which saw price growth continue to fall. Commenting on the figures, Robert Gardner, Nationwide's Chief Economist stated that January saw a further monthly price fall of 0.6% while annual house price growth slowed to 1.1%, from 2.8% in December with prices now 3.2% below the August peak. There was however encouraging signs that mortgage rates are normalizing, but it remains too early to tell whether the housing market has started to recover. House purchase approvals continued to fall as reported by the Bank of England with potential buyers weary of the rising cost of servicing the typical mortgage because of the increase in mortgage rates. Mr. Gardner warned that it will be hard to regain momentum in the near-term as economic headwinds remain strong with real earnings likely to fall and the labor market projected to weaken as the economy shrinks.

In what could be dubbed ‘walkout Wednesday’ the UK is facing its most significant day of industrial action in a decade. Downing Street issued a warning to the public that coordinated strikes could cause significant disruption as up to 500,000 civil servants, teachers and train drivers walk out simultaneously over jobs, pay and conditions.

The big event of the day is without a doubt the FOMC meeting later in the day with the Fed expected to hike interest rates by 25bps. Without updated economic projections at this meeting market participants will no doubt focus on the policy statement and Fed Chair Powells remarks at the press conference as to the path moving forward.

TECHNICAL OUTLOOK

Looking ahead to the rest of the day, we could be in for sideways price action as market participants remain hesitant to get involved before the FOMC meeting. The double-top pattern on the daily remains in play yet failed to inspire a break of the range yesterday. A hawkish press conference from Fed Chair Powell could facilitate a test of the lower end of the range at 1.22600 and potentially a break lower. Any comments around a pause in hikes or a dovish message could see us test the psychological 1.25000 handle and potentially break higher. A key week for the long-term prospects of GBPUSD.

IG CLIENT SENTIMENT DATA: BEARISH

IGCS shows retail traders are currently SHORT on GBP/USD, with 53% of traders currently holding short positions. At DailyFX we typically take a contrarian view to crowd sentiment, and the fact that traders are short suggests that GBP/USD may continue to rise.