GBP/USD Breaks to 5-Week High and Tests 200-Day Moving Average

Optimism is dominating the markets and has led to a correlated move higher in GBP/USD to levels not seen since early June.

In the United States, investors are brushing off concerns over rising cases in favor of the view that progress is being made towards a vaccine for the Coronavirus.

In Europe, equity markets have been rallying as EU leaders have reached an agreement on a 750 billion euro stimulus package to aid EU member states hit hard by the virus.

Optimism from the UK stems from hopes that the economy will recover as lockdown restrictions have eased over the past few weeks, leading businesses to reopen and consumers to return to the market place.

The equity markets have rallied in the early week and GBP/USD, which has had a strong correlation with risk assets as of late has followed.

The currency pair briefly traded above the 1.2700 handle earlier today and is set to post a third consecutive day of gains. Sterling is the strongest currency among the majors in the week thus far.

Technical Analysis

GBP/USD has taken out a major resistance level at 1.2643. This same level had held the pair lower in April on two tests. The first one led to about a 2% pullback while the second one initiated a 3.7% decline.

The bullish break sets a firm tone for the currency pair although the 200-day moving average has come into play which could cap gains for the session ahead.

Currently, the indicator is found at 1.2697 and where the pair closes the day relative to it should give an indication as to the strength of the recent breakout.

The economic calendar is relatively light until Friday when the UK and US release their latest PMI figures. Until then, the pound to dollar exchange rate is likely to continue taking its direction from the equity markets.

Bottom Line

• GBP/USD has broken above major resistance at 1.2643 after trading in a range since July 8.
• The 200-day moving average offers resistance near 1.2700.
• PMI data from the UK and US will be released on Friday.

For a look at all of today’s economic events, check out our economic calendar.