GBP/USD Review. Week Preview. What to Expect from the Fed Meeting?

[Ben Graham]

The GBP/USD currency pair rose by 220 points on Thursday and Friday. The volatility of the British pound increased sharply last week, as did that of many other currency pairs. On the daily timeframe, we can clearly see that the formation of an upward trend continues, which we have been constantly warning about in recent months. Thus, we expect further growth of the British currency, which the pound itself cannot control. The market will continue to rid itself of the American currency unless the global fundamentals turn around 180 degrees. There are currently no reasons for such a reversal.

This week, the Federal Reserve meeting is taking place in the U.S., and there is virtually nothing to say about it. The Fed has cut the key interest rate three times in the last three meetings, Donald Trump continues to demand more aggressive monetary easing, and the dollar is falling regardless (whether with or without policy easing). The criminal investigation into Jerome Powell is ongoing, the case against Lisa Cook is still in progress, and the FOMC Committee is focused on one rate reduction this year, while inflation in the U.S. remains elevated. Such is the brief summary of news ahead of the first meeting of the U.S. central bank in 2026.

Traders and analysts do not expect that new monetary policy easing will be implemented at the January meeting. Therefore, the U.S. dollar will receive no market support. Strictly speaking, the Fed should not be expected to provide support for the American currency at all. Recall that a currency typically rises when a central bank tightens its monetary policy, and the Fed has been in a cycle of easing for three years. Thus, at best, sales of the American currency will be paused for some time.

In the UK, there are no important events scheduled for next week. Therefore, the GBP/USD exchange rate may only be influenced by U.S. events. Let's turn to the macroeconomic releases in the U.S. This week, reports on durable goods orders, the weekly ADP employment report, jobless claims, and the producer price index will be published. Which of these reports could even hypothetically support the American currency if the market completely ignored the latest strong GDP report?

In our view, the dynamics of the GBP/USD pair this week will depend, first, on technical factors and, second, on the dynamics of the EUR/USD pair. If the euro breaks out of its seven-month sideways channel, the likelihood of continued growth increases. If the euro rises, the pound is likely to rise too. And neither jobless claims nor the producer price index will stop the dollar's decline. However, if Donald Trump decides to impose new trade tariffs or conduct operations to "save the Iranian people from a criminal regime," this will be another reason for traders to sell the dollar without hesitation.

The average volatility of the GBP/USD pair over the last five trading days is 100 pips. For the pound/dollar pair, this value is considered "average." On Monday, January 26, we thus expect movement within the range limited by the levels of 1.3542 and 1.3742. The upper linear regression channel is directed upward, indicating a trend recovery. The CCI indicator has entered the oversold area six times over the past months and has formed numerous "bullish" divergences, which have consistently warned traders of a forthcoming resumption of the upward trend.

Nearest Support Levels:

S1 – 1.3611

S2 – 1.3550

S3 – 1.3489

Nearest Resistance Levels:

R1 – 1.3672

R2 – 1.3733

R3 – 1.3794

Trading Recommendations:

The GBP/USD pair is on track to resume the 2025 upward trend, and its long-term prospects have not changed. Donald Trump's policy will continue to exert pressure on the U.S. economy, so we do not expect the U.S. currency to grow in 2026. Even its status as a "reserve currency" no longer matters to traders. Thus, long positions with targets at 1.3672 and 1.3733 remain relevant for the near term while the price is above the moving average. The price is positioned below the moving average line, allowing for small shorts with a target of 1.3428 on technical (corrective) grounds. From time to time, the American currency shows corrections (on a global scale), but for trend growth, it needs global positive factors.

Explanations for the Illustrations:

• Linear regression channels help determine the current trend. If both are directed in the same direction, the trend is currently strong;
• The moving average line (settings of 20, smoothed) determines the short-term trend and the direction in which trading should currently be conducted;
• Murray levels are target levels for movements and corrections;
• Volatility levels (red lines) represent a likely price channel in which the pair will remain for the next day based on current volatility indicators;
• The CCI indicator entering the oversold territory (below -250) or overbought territory (above +250) indicates that a trend reversal is approaching.

The material has been provided by InstaForex Company - www.instaforex.com