GBP/USD Continues to Battle its 200-Day Moving Average

Sterling showed strength last week after it mostly under performed its major counterparts in May. The recent price action suggests further upside for the pair over the medium-term but bulls will want to see GBP/USD clear above its 200-day moving average first.

The dollar continued to fall last week with the trade-weighted index (DXY) posting a third consecutive weekly loss. From its high in May, DXY is down 3.5%, weighed by strength in the equity markets.

Friday’s jobs report triggered a dollar bounce as figures came in well below analyst expectations. The session ahead should shed some light on whether the greenback can extend on the recovery.

While GBP/USD spiked to a high of 1.2731 on Friday, the pair failed to make a clear break above the 200-day moving average on a daily close basis. This indicator could prove to be a near-term hurdle especially if the dollar builds on Friday’s recovery.

The markets will want to see if the Fed has changed its stance after Friday’s jobs data and this could be a major catalyst that determines the dollars fate of the near-term. Until the Fed meeting on Wednesday, there could be a slowing of volatility.

In addition to the Fed meeting this week, the outcome of Friday’s UK GDP figures will also be important for GBP/USD traders. Analysts are expecting an 18% decline in month over month growth after a decline of 5.8% in the last report.

Technical Analysis

If GBP/USD makes another upside attempt, resistance for the session ahead is seen at 1.2766 as the level acted as support in early March.

The importance, once again, will be on whether the pair closes above the 200 DMA on a daily close basis. The failure to do so can result in a pullback.

At the same time, last week’s renewal of upside momentum suggests that dips in the pair will be well bid. Downside support for the pair is seen at 1.2625 followed by 1.2482.

Bottom Line

• GBP/USD shows renewed upside momentum but the 200 DMA has proven to be a hurdle thus far.
• Wednesday’s Fed meeting and UK GDP data scheduled for release on Friday are the two big events that stand to move the pair this week.

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