GBP/USD Retreats Once Towards Support Once Again

GBP/USD has held in a range for most of the week with buyers stepping in on dips towards 1.2500 while sellers have defended a major resistance area seen near 1.2650.

Earlier in the week, the pair made a sharp recovery from just below the 1.2500, despite a weak UK GDP report, as the dollar fell under pressure as a result of a rise in risk appetite.

The equity markets, however, have moved into a sideways range since yesterday which has kept fluctuations in the dollar muted, and has triggered a range in GBP/USD.

While the markets may not have shown a strong reaction to this week’s UK GDP report, there could be repercussions if growth persistently falls below expectations.

Analysts from Markit, the provider of PMI data, have already warned that the Bank of England’s growth targets might be too ambitious and have offered an alternative scenario that entails a much lower rate of growth in 2021.

If such a scenario plays out, the Bank of England may be forced to reconsider further easing measures to help support the economy.

In the US, the rate of new daily Coronavirus cases continues to increase at an alarming rate. However, the markets have mostly brushed off the concerns and remain optimistic that progress will be made towards finding a cure and that the government and the central bank will continue to provide support to the economy.

Technical Analysis

The range in GBP/USD is well defined. Resistance around 1.2640 held the pair lower twice in April and has been holding it lower since the approach towards it last week.

To the downside, support is seen at 1.2500 with the 20-day moving average near the level to create a confluence.

Considering the light economic calendar for the session ahead, the pair is likely to remain within this range.

The weekly close will be important. If the pair dips below the 1.2500 handle into the close today, it would result in a reversal candlestick pattern on a weekly chart. Such a scenario would set a negative tone for next week.

Bottom Line

• GBP/USD has been rangebound as resistance near 1.2650 has proven to be a major hurdle, despite persistent dollar weakness.
• A break below 1.2500 range support could see the pair extend losses towards 1.2350.