GBP/USD Daily Forecast – Sterling Falls Below 4-Hour 100 MA

Volatility Returns to the Markets

After trading in a tight range for most of last week, GBP/USD has made a downside break. The move is attributed to a stronger dollar as the greenback has been gaining on positive progression in trade talks between China and the US.

Trump agreed over the weekend to ease back on restriction to telecom giant Huawei and also promised not to introduce any more tariffs. In return, China will purchase an unspecified amount of US farm products, and has agreed to return back to the negotiation table.

Much of the optimism as a result of this news is seen in the equity markets with several popular European indices gaining. In the currency markets, the dollar is up against all of its major counterparts. At the time of writing, the Swiss franc was the biggest decliner, down about three-quarters of a percent against the dollar. The Canadian dollar lost the least and is relatively flat versus the greenback.

The British pound is the second weakest at the time of writing. It was last seen down just less than half a percent.

Technical Analysis

The pair made a fairly significant break lower. Last week, it was the 100 moving average on a 4-hour chart that had been holding it higher. The pair has managed to break below it, as well as a horizontal level just below it at 1.2655.

The breakdown carries bearish implications for the pair. Also, across the majors, similar price action can be seen. This makes me think that we could see a bit of a broader dollar pull back, in spite of the earlier bearish momentum.

The next area to the downside in focus for GBP/USD falls at 1.2605. Its proximity to the psychological 1.2600 handle is likely to entice buyers. I expect that rallies in the early week will be short-lived. I see some major resistance at 1.2688, but at this point, it doesn’t seem that the pair will get there even if it attempts a recovery rally.

Bottom Line

• The dollar is recovering broadly.
• Recovery rallies in GBP/USD likely to be sold following an important technical break lower.
• Next area of downside interest near the 1.2600 handle.