Does the GBP/USD recovery put the pound on a path back to 1.4000?

Summary:

GBP/USD is trading close to a seven-day high as the Dollar digests fed Chair Powell's 'Dovish' address following the Jackson Hole symposium.

GBP/USD is trading close to a seven-day high as the Dollar digests fed Chair Powell’s ‘Dovish’ address following the Jackson Hole symposium. For the last month, the market has been anticipating last week’s virtual meeting of Central bankers, wondering if the Fed would finally provide a time-lime for scaling back its bond purchase programme.

Concluding Friday’s two-day meeting, FOMC Chairman Jerome Powell announced that he expects the US Central Bank will begin tapering by the end of the year. Furthermore, according to statements from Fed officials, the taper may come as soon as the September meeting of the FOMC.

However, this does not suggest that interest rates are set to move higher any time soon. Powell reminded the market that a reduction in asset purchases “will not be intended to carry a direct signal regarding the timing of interest rate liftoff, for which we have articulated a different and substantially more stringent test,”

This helped GBP/USD higher by 0.40% to 1.3757, reclaiming the 200-day moving average and close to breaking out of its short-term downtrend.

Pound vs Dollar Price Forecast

The daily chart shows the Pound is turning higher from a wide band of support between 1.3600 and 1.3700. Additionally, the pair is trading back above the 200 DMA at 1.3712. However, a trend line from the July high has so far capped the rally at 1.3771. Successful clearance of this barrier opens the door for GBP/USD to progress to the 100 DMA at 1.3838. Furthermore, if the pound hurdles the 100-day, 1.4000 becomes more than achievable.

Initial downside support is found at the 200 DMA, and below that, buying should be seen scale-down between 1.3700 and 1.3600. However, If GBP/USD drops below 1.3600, this would put the bears firmly back in the driving seat and suggest a return to the September 2020 high of 1.3483.