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GBP/USD Daily Forecast – Sterling Recovers and Snaps Six-Day Losing Streak

GBP/USD is catching a bid in holiday-thinned trading although the pair continues to trade below the psychological 1.30 handle.
Jignesh Davda
GBP/USD

US Dollar Facing Major Resistance

The US dollar index (DXY) is pressing up against major resistance and is showing signs it could turn lower from here after a two-week recovery. This could lead to a relief rally in GBP/USD which has been under pressure for about a week.

Specifically, DXY is facing it’s 200-day moving average, an indicator it has not traded above on a sustained basis since the start of the month. Over the past four sessions, the index has managed to get above it on an intraday basis but has not been able to sustain the upward move.

Most of the currencies this week are trading in relatively tight ranges as a bulk of the major banks are off on holidays. In this context, technical developments should be read with a bit of caution.

The upside break in GBP/USD is a perfect example. The currency pair managed to break upward from a downtrend channel that has encompassed it for a week. It might be signaling a reversal, but a safer play would be to wait until liquidity returns to the markets to see if the bullish momentum holds.

Technical Analysis

GBP/USD gained some upward momentum after breaking above range resistance at 1.2947 yesterday. The pair fell slightly short of testing the 1.3000 handle before coming under pressure once again.

The importance of the 1.3000 price point cannot be ignored. It will tend to be seen as a line in the sand for the pair. While below it, traders will likely continue viewing the pair as bearish.

GBPUSD Hourly Chart

On an hourly chart, GBP/USD is seen retesting the upper bound of the one-week long channel. Further support for the pair comes in at 1.2947 and it would need to hold this level to maintain the recent upward momentum. A failure to do so would tend to target recent lows at 1.2905.

For the session ahead, recovery rallies are likely to be capped by resistance at 1.3000 considering the light economic calendar. The only item on the docket today pertaining to the pair is the US weekly jobless claims report. This release typically does not accompany much of a market reaction.

Bottom Line

  • GBP/USD is showing signs of recovery although it might be too early to tell if it will turn into anything meaningful.
  • A potential trading range for the session ahead might be between 1.2950 to 1.3000.
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