GBP/USD Makes a Run at 4-Week Highs

The British pound has moved higher every day this week thus far against the dollar although volatility remains subdued.

Up until the last week of March, the currency pair experienced volatile weekly price swings of 5% or higher for three consecutive weeks. However, a range has developed since, and despite the weaker dollar, the pair has not broken out of it as of yet.

The US dollar has been weighed this week by a pick up in demand for risk assets such as stocks. The S&P 500 rose for a second consecutive session yesterday and will close the week back above its 200-week moving average

The US index was boosted by a new $2.3 trillion stimulus package introduced by the Federal Reserve which expands on the already significant measures the central bank has taken to stave off the effects of the Coronavirus. The greenback continues to carry an inverse correlation with stocks and the dollar index (DXY) is down about 1.3% in the week thus far.

Trading in the session ahead is expected to be quiet as the US stock markets will be closed in observance of Good Friday. On Monday, European equity markets will be closed for Easter Monday.

Technical Analysis

GBP/USD looks to have broken higher from a bullish flag pattern although there is a lack of upward momentum and the pair is yet to break above highs set at the turn of the month.

While the pair appears poised to break higher from here, resistance from prior highs, just below the 1.2500 price point, may prove to be a hurdle in the session ahead. This holds especially true considering the holiday in the US.

There may be a spike higher to trigger stops above 1.2500 but traders should cautious of a fake breakout in today.

The US dollar index (DXY) has broken decisively below the 100.00 level and this could set the tone for next week. In this regard, GBP/USD remains a buy on dips.

Bottom Line

• A weaker dollar has led to a rally in GBP/USD towards the upper limit of a range that has been playing out over the past two weeks.
• Volatility is expected to decline in the session ahead as US equity markets will be closed in observance of Good Friday.