Deep Oversold Conditions Raise the Probability of a Rebound

Summary:

If price manages to find support and produce a bullish reaction from this area, the broader recovery structure could remain intact and open the door for another upward move.

Buy GBPUSD

EXP

PENDING

1.33500

ENTRY

1.35450

TGT

1.32350

1.34039 +0.00253 +0.19%

Point

PENDING

1.32350

CLOSING

1.33500

ENTRY

1.35450

TGT

The Bank of England is widely expected to leave interest rates unchanged at 3.75% for a sixth consecutive meeting this Thursday. As a result, market attention is likely to focus on the voting split among policymakers after the previous meeting concluded with a 6-3 vote, with three members favoring a 25-basis-point rate increase in response to inflation risks associated with elevated oil prices.

Recent economic data has provided additional support for the UK economy. Gross Domestic Product expanded by 0.4% month-over-month in July, exceeding expectations for no growth and following a 0.3% increase recorded in June. Industrial Production and Manufacturing Production also outperformed forecasts, rising 0.2% and 0.9% month-over-month respectively, indicating that economic activity remains relatively resilient despite restrictive monetary conditions.

Meanwhile, the U.S. Federal Open Market Committee (FOMC) delivered a 25-basis-point interest rate increase, matching market expectations. Following the decision, the target range for the Federal Funds Rate was raised to 3.75%-4.00%.

The accompanying policy statement indicated that policymakers continue to view inflation as elevated, even as economic activity maintains a solid pace of expansion. Regarding labor market conditions, officials noted that employment growth has remained broadly aligned with labor force growth and that the unemployment rate has shown little change in recent months.

The Summary of Economic Projections (SEP) also revealed that policymakers continue to anticipate additional tightening before the end of the year. Twelve of the eighteen officials expect one more 25-basis-point rate increase, while four project two additional hikes. Only two members foresee no further policy adjustments this year. Inflation remains the central issue, with officials forecasting headline inflation at 3.7% by the end of 2026 compared with 3.6% in previous projections. Core inflation is expected to reach 3.4%, slightly above the prior estimate of 3.3%.

During the press conference, Chair Kevin Warsh described the decision as the appropriate course of action, arguing that monetary conditions had not yet become sufficiently restrictive. His hawkish comments strengthened expectations that the Federal Reserve could still deliver as many as two additional rate increases before the end of the year if inflation remains persistent.

At the same time, U.S. President Donald Trump urged the Federal Reserve to lower interest rates to 1% or below only hours after the central bank delivered its first rate increase since 2023. The ongoing disagreement between the White House and the independent Federal Reserve could continue supporting demand for safe-haven assets and help limit downside pressure in markets such as gold. Deep Oversold Conditions Raise the Probability of a Rebound_1

Deep Oversold Conditions Raise the Probability of a Rebound_1

Technical Analysis

GBPUSD is approaching a local support area that aligns closely with the 0.618 Fibonacci retracement level, creating a technically relevant zone where buyers could begin to re-enter the market. If price manages to find support and produce a bullish reaction from this area, the broader recovery structure could remain intact and open the door for another upward move.

At the moment, the 100-period and 200-period moving averages are located at 1.3527 and 1.3430 respectively. Both indicators remain above current price action and continue to act as dynamic resistance levels. While additional downside movement remains possible in the near term, the broader structure would remain constructive as long as the pair stays above the August low at 1.3275. A break below that level would create a new local low, significantly increasing bearish pressure and effectively invalidating the current bullish setup.

Looking at momentum indicators, the Relative Strength Index (RSI) continues to show signs that the recent decline has become extended. The indicator is currently positioned near 25, firmly within oversold territory and reflecting a high degree of bearish momentum. However, these extreme readings also suggest that selling pressure may be approaching exhaustion, increasing the likelihood of a bullish rejection once price finds support.

Meanwhile, the MACD continues to display a bearish histogram that has gained depth during the latest decline, confirming the strength of the recent downside move. At the same time, the signal lines remain only slightly below neutral territory, indicating that bearish momentum has not yet become deeply established. A period of consolidation around the nearby support zone, followed by a clear bullish reaction, would strengthen the case for a resumption of the broader upward move and provide additional confirmation that buyers are regaining control.

Trading Recommendations

Trading direction: Buy

Entry price: 1.3350

Target price: 1.3545

Stop loss: 1.3235

Validity: Sep 29, 2026 15:00:00

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