It is another huge week for financial markets this week with the ongoing conflict in the Middle East providing plenty of volatility from a geopolitical perspective, while investors also have to contemplate interest rate decisions and updates from several key major central banks. As always, the most keenly watched rate call will be from the Federal Reserve Bank on Wednesday and although the market has been strongly pricing in a ‘hold’ for the past couple of months, with the odds now sitting at over 99%, the updates from the committee in the statement, economic projections and the later press conference are guaranteed to see a reaction in the market.
Expectations that the FOMC will keep rates higher for longer have jumped over the last few weeks as the market continues to raise concerns that the war with Iran will lead to inflationary conditions and that the next move from the Fed may now not be another cut but could be a hike later in the year. The market had been pricing in a strong chance of a cut in June or July but the odds of that occurring are now priced down to 21% and 32% respectively, and, if we see a strong hawkish leaning from the committee in the updates and dot plot, then expect those expectations to decrease even further and the dollar to push higher.
The dollar is sitting near annual highs against most of the majors and looks set up nicely for a good move once the Fed delivers it’s update late in the day on Wednesday. Cable is looking particularly well set up sitting near the middle of the recent range with the potential to break out on any deviation from expectation from the FOMC. Anything more hawkish than expected should recent annual lows challenged in short order with a break then opening the way for a move down to 1.3000 while a more dovish result should see a rally higher with a break of the resistance trendline likely to lead to a move north of 1.3400.
Resistance 2: 1.3867 – Long Term Trendline and 2026 High
Resistance 2: 1.3436 – Short Term Trendline and 200 Day Moving Average
Support 1: 1.3215 – Trendline Support and 2026 Low
Support 2: 1.3007 – Long Term Trendline Support and Nov 2025 Low
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