GBP/USD Holds Within a Tight Range Below Resistance

The British pound briefly traded at a fresh one-month high against the dollar early last week but the upward momentum was not sustained as the dollar showed broad-based strength in the second half of the week.

A consolidation has formed as a slowdown in volatility is seen in most of the FX major currency pairs to start the new week. The exception is the Canadian dollar which is weighed by a further fall in oil prices to fresh multi-decade lows.

Bank of England Deputy Governor Ben Broadbent said earlier today that the UK economy could contract by 35% in the second quarter, similar to comments from BoE Governor Andrew Bailey last week.

Broadbent added that it might take some time for the economy to return to normal if the lockdown restrictions were to be lifted as citizens may still act cautiously.

Broadbent further expressed his expectations for a sharp fall in inflation, which is impacted by tumbling oil prices in addition to the virus. He expects the consumer price index to fall below 1% over the next few months.

On Tuesday, the UK will release its latest unemployment rate. Since the data covers a three month period to the end of February, it is not expected to include job losses as a result of the virus.

Technical Analysis

GBP/USD turned last week from an important area of resistance as the 61.8% Fibonacci retracement from the March high came into play.

Further, the 200-day moving average is not all that far and so there is some potential for a broader turn in the pair at this stage. At the same time, there has not been a significant show of downside momentum which could provide the needed confirmation.

Near-term resistance for the pair is found at 1.2523 and this level may act as a line in the sand for a near-term direction bias.

To the downside, support at 1.2437 has been holding the pair higher over the past few sessions.

A break in either direction is likely to see some follow-through. But at the same time, the relatively light economic calendar in the early week may encourage traders to fade breakouts and therefore traders should be cautious in this regard.

Bottom Line

• GBP/USD has fallen into a tight range after a failed breakout last week.
• The 1.2523 resistance level is a key level for direction over the next session or two.