GBP/USD Daily Forecast – Pound Regains 1.25 Handle on a Weaker Dollar

GBP/USD Bought From Lows Once Again

Similar to last week, GBP/USD dipped to notable lows this week but has caught a strong bid in the second half of the week to erase a bulk of the earlier losses.

On a weekly chart, 1.2523 has supported the pair on a candle close basis. Currently, the pair trades close to it and a weekly close above it would lead to a reversal pattern.

The pair managed to scale above resistance yesterday after a speech from New York Fed President Williams suggested the Fed may ease aggressively at their meeting later this month.

This has not been the first Fed member that has hinted that the central bank should consider a larger rate hike at the meeting ahead rather than two individual 25 basis point cuts over by the end of the year.

Fed member Evans is the other FOMC participant that seems to be thinking along the same lines. He recently argued that making a larger cut now could help move inflation higher over a shorter period of time.

Technical Analysis

Yesterday’s recovery shows strength considering the large daily candle print. I also think there were some notable technical breaks.

First, the pair has rallied above a three-week declining trendline. The pair was last seen retesting this trendline. As well, the pair has regained the 1.2500 handle which is considered to be quite significant considering its psychological properties.

As already mentioned, the weekly candle is in focus. Today’s price action will tend to be important. I think if the pair is able to close near current levels, it might cause some panic among bears that sold earlier in the week.

Having said that, the British pound has consistently been weak in July, when compared to its major counterparts. In this context, it might be too soon to call a significant bottom in place.

Bottom Line

• GBP/USD is retesting a broken trendline that originates from a high posted in late June.
• The weekly candle is in focus and suggests reversal potential.
• The pair will need to hold above 1.2500 to maintain the bullish momentum.