GBP/USD Daily Forecast – Recovery Rally Blocked at 1.3050 Resistance

GBP/USD was lifted higher last week after testing its 100-day moving average. The pair has made a notable recovery although the bearish momentum from earlier in the month stands to hinder further gains.

The dollar index (DXY), while posting a second consecutive weekly gain, has shown signs of weakness. The greenback declined against all of the major commodity currencies as well as Sterling last week which might be offering an early signal for a pullback.

The euro was the weakest of the bunch last week, and as the highest weighted currency in the dollar index, it was responsible for a bulk of the weekly gain in DXY. As a result, EUR/GBP declined to a fresh yearly low and is on the verge of breaking to lows not seen since shortly after the Brexit vote.

The week is expected to have a slow start with US banks on holiday and light economic data. UK jobs data will be reported on Tuesday and the Fed will release minutes from their last meeting on Wednesday. Inflation data out of Britain will also be released on Wednesday. CPI is forecast to rise by 1.7% in the year to January versus a rise of 1.3% in the prior reading.

Equity markets shrugged off Coronavirus fears and the S&P 500 rose for a second consecutive week to close at a fresh record high. The UK FTSE diverged from the global markets and ended last week with a small loss.

Technical Analysis

The smaller time frames for GBP/USD point to an uptrend. The weekly chart, however, suggests the upside might be limited in the week ahead as a result of the bearish candle posted in the first week of the month.

The pair gave up nearly two and a half percent that week and remains in the red for the month as a result of it.

Resistance is in play from a horizontal level at 1.3050 and the upward momentum has slowed since the approach to the level late last week. Further resistance is also in play from the 50-day moving average, currently residing at 1.3067.

To the downside, the level to watch is 1.3000. A break below it might shift the near-term outlook back to bearish.

Bottom Line

• GBP/USD gained every day last week and the short-term trend is bullish.
• Technical indicators on the larger time frames suggests sellers will take advantage of the current recovery. Resistance is in play from a horizontal level at 1.3050 and the 50-day moving average.