The GBP/USD continues to rally this week, after starting it with a low on the year at 1.4564. Since then, it has not looked back. The 4H chart shows the market rallying on the back of weak US data. Even step higher, the previous resistance became support. Today (4/17), the GBP/USD rallied higher, even though there was no US data yet.
Here are some observations of this week’s rally:
1) This week’s rally is mainly a USD story.
2) Price has broken above the cluster of 200-, 100-, and 50-period SMAs, and if it starts to hold above the 1.4750-1.48 area, a bullish outlook will develop.
3) Price has broken a common resistance around 1.50, which signals some further upside risk towards the 1.5165 resistance pivot from mid-March.
The break above 1.50 occurred alongside the release of some key UK jobs data. We saw 20.7K fewer claimaint counts (unemployment benefits claims) in the month of March. This disappointed forecasts of a larger reduction around 29.1K. February’s print was revised from -31.0K to -29.1K.
The unemployment rate in February fell from 5.7% to 5.6% as expected. Meanwhile, the average earnings index rose 1.7% comparing the 3 months to February to the same period last year. Forecasts called for a reading around 1.8% and the previous print was revised up to 1.9% from 1.8%.
This data is mixed, and maybe even slightly negative. It definitely is not GBP-positive. The GBP/USD’s rally is still a USD story and the rally is probably due to the prevailing bullish momentum this week as the market wants to test that 1.5165 high.
In the daily chart, we can see that the market is rallying after a bullish divergence between price and the RSI. We can say that the bullish divergence has been resolved, and is no longer valid now that the market has already reversed in the short-term.
In the medium-term however, the bullish outlook is still on the shelf because there are some key resistance factors just above the current GBP/USD price level. Around the 1.5165 high, there is also a falling trendline and the 100-day SMA. If we find resistance here, look for a bearish attempt at least to the 1.4750-1.48 area, if not a bearish continuation to test the 1.4564 low on the year.
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