GBP/USD Daily Forecast – British Pound Trying to Recover Higher

Dollar Weakness is the Predominant Driver in the Early Week

GBP/USD will attempt to post a third consecutive day of gains on Tuesday, but it’s more a result of a weaker dollar than sterling strength. The greenback is down against all of the majors for the week thus far. The two currencies that have made the least gains in this period are the British pound and Japanese yen.

To get a clearer picture of how badly sterling is performing, take a look at EUR/GBP. Over the last 20 sessions, the pair has risen in all but three. And even those three losing days only represented a relatively small loss. In this time, the pair is up nearly 5%.

Another 1% rally in the pair and it will be in the green for the year, after an earlier fall of nearly 6% as measured from this year’s open price.

The US dollar index (DX) traded at a fresh 1-year high about two weeks ago but has been under pressure. The index turned sharply lower on Friday after a tweet from Trump stating his intentions to place tariffs on Mexico. Today, DX is threatening to break to a six-week low.

Technical Analysis

There are a few things in play on an hourly chart. First, on the bearish side, the pair posted a bearish engulfing candle that indicates selling pressure into the European open.

GBP/USD also struggled to take out resistance at 1.2677. This was a level outlined in my report yesterday, as a potential place to short from.

There is a confluence of resistance there as it marks the 61.% Fibonacci level from highs printed on May 27th. There is also the 50% retracement measured from the May 21st spike high, this level has held the pair lower for the day thus far.

On the bullish side, the pair is testing trendline support from the low last week. The 200-period moving average is also there to create a confluence and a horizontal level at 1.2654.

The 4-hour chart shows the potential of a reversal candle as a result of the price action at the European open, the candle close will be important.

I think it will take a 4-hour candle close above 1.2677 to reassert bullish near-term sentiment. A break of support mentioned above targets 1.2624.

Bottom Line:

• Considering the downward momentum in the greenback, I like playing GBP/USD to the long side
• Because of the strong confluence of support at 1.2654, I think this is an area the pair can turn from, despite the bearish 1-hour candle
• Price action can be choppy in this pair considering the recent history of weakness. There are probably other pairs to play to the upside if looking to take advantage of a weaker dollar.