GBP/USD Daily Forecast – Sterling Edges Lower as the Dollar Catches a Bid

Sterling Declines Likely to be Short-Lived

The US Dollar index (DXY) is once again testing support from its 50-week moving average, causing a little bit of a relief rally in the early week. This indicator has held DXY higher over the past three weeks now.

With the dollar catching a reprieve, GBP/USD has come into pressure. However, the pair has shown a great deal of strength as of late and thus I expect that dips will be well-supported.

The pound to dollar exchange rallied just over 5% in October which was its largest monthly gain in a decade. Much of the rally is attributed to a re positioning the markets as expectations for a no-deal Brexit declined significantly. Further aiding the rally was a broadly weaker dollar.

In the end, the UK delayed Brexit for a third time, unable to meet the October 31 deadline. Nevertheless, the British pound has held firm against its major currency counterparts. I’m looking for some continued strength, and I think this dip offers a buying opportunity.

Technical Analysis

GBP/USD broke upward from a bullish flag pattern last week to reaffirm the uptrend. In today’s session, the pair is under a bit of pressure, falling below a horizontal level at 1.2924.

I think the technical picture at this point is a bit mixed, although the recent price action suggests a bullish bias. The reasoning behind this thinking is that the failure to hold above 1.2924 shows a general lack of buying.

But at the same time, the bull flag pattern from last week is in play. Combined with the broader uptrend, it doesn’t seem wise to take a bearish view.

Some potential support for the current decline is found just below the 1.2900 level. On a 4-hour chart, the 50-period moving average resides in that area.

Beyond that, there is more support at 1.2846 in the event the current decline gets some legs. This represents a horizontal level, but more importantly, the upper bound of the bull flag pattern falls near the level.

Bottom Line

• GBP/USD is under a bit of pressure as the dollar index is once again supported by its 50-week moving average.
• A bullish flag pattern was triggered last week. This signals that the pair remains in an upward trend.
• A break of support at 1.2846 negates the near-term bullish bias.