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Jignesh Davda

The upward momentum in GBP/USD weakened on Wednesday as the pair trades near a technical area that drew sellers. Nevertheless, the exchange rate has held up and there is potential for more gains, especially as the dollar has started to soften this week.

Market sentiment in the UK housing market continued to improve in January with a rise in both new buyers and sellers. Survey data showed a net price increase of 17% in January which was the first time surveyors reported an increase in prices since the summer of 2018. The figure was well ahead of analyst expectations which called for an increase of 3%. Further, there was an upward revision for December to 0% from the originally reported decline of 2%.

Simon Rubinsohn, Chief Economist at reporting agency RICS, attributed the improvement to rising sentiment in the aftermath of the General Election.

Risk sentiment in the markets deteriorated after reports of a record number of Coronvirus deaths on Wednesday. This shift in sentiment was abrupt as reports on Tuesday indicated new cases had fallen to a two-week low, suggesting a significant step forward. As of late, the dollar has risen during periods of risk appetite, if the shift to risk aversion proves to be sustained, the greenback stands to par back recent gains.

Technical Analysis

GBP/USD showed upward momentum in the early week after turning higher from its 100-day moving average. The momentum slowed mid-week after a horizontal level at 1.2960 came into play.

GBPUSD Hourly Chart

This level not only acted as support in January, but was also a major hurdle for the pair for most of the fourth quarter.

A rising trend channel has encompassed price action in the recovery that started at the beginning of the week and the lower bound of it provided supported earlier today. While within the bullish channel, the pair stands to extend higher.

Important support for the session ahead falls at 1.2950. A break above 1.3000 shows the next level of interest falling at 1.3050.


Bottom Line

  • GBP/USD eased lower on Wednesday, after a recovery in the early week. The lower bound of a rising trend channel has kept the recovery intact.
  • While above 1.2950, the next upside target for the pair falls at 1.3050.
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