The bounce yesterday came as buyers leaned on the 100-hour moving average for support and dollar weakness during US trading allowed price to climb towards the 1.2500 handle.
However, similar to the end of last week and the start of this week, the upside move stalls after running into key daily resistance from the 100-day MA (red line) @ 1.2501 and the 38.2 retracement level @ 1.2502.
Although price is backing off those levels a little, buyers are still poised in angling for a break higher and we may get one after the FOMC meeting today.
There is UK CPI data to contend with prior to that but in my view, it isn't going to be a game changer for the pound as inflation pressures aren't something that will impact the current BOE outlook in light of Brexit uncertainty.
As such, the Fed will be the main focus today for cable price action.
A 25 bps rate cut is a done-deal at this stage while the dot plots are expected to show a potentially less dovish tilt than what markets are pricing in. However, I reckon Powell's message will be more key and if he will tee up any more expectations of further rate cuts during this so-called "mid-cycle adjustment".
In my view, the Fed always punts so I would expect Powell to give out similar vibes to what we saw in July. If the dot plots suggest no more rate cuts this year, then perhaps the dollar can find some short-term reprieve in that.
However, the caveat to all of this will be the latest curve ball thrown by the money market in terms of funding. I don't think the Fed themselves know exactly what is going on but they may yet take steps to ensure that the issue we're seeing this week does not come to surface again - so either a standing repo facility or allowing the balance sheet to grow again.
They can't afford to lose control of rates (especially the EFF) so we could possibly see QE as a course of action and markets may latch on to that decision. The fact that the Fed has to address something like this so suddenly may mean something is possibly awry with the money market and that is not a good sign of confidence.
As such, if markets choose to focus on that, we could see the dollar weaken in the aftermath and a break above the key resistance levels above could see cable soar towards 1.2700 levels at least over the next few sessions - from a technical perspective.