GBP/USD Approaching Key Resistance Factors

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GBP/USD Approaching Key Resistance Factors

The GBP/USD has been in a sharp rally since making a low on the year at 1.4564 in mid-April. In just a month, cable has climbed back above the previous high on the year, and continues to reach higher this week, after the BoE inflation report. Think about that, 1 month of bullish swings wiping out 4 and a half months of decline. Even though it is still not half of the July-2014-April 2015 decline, it is hard to categorize this rally as simply a bullish correction.

GBP/USD Daily Chart 5/14
GBP/USD Daily Chart 5/14
(click to enlarge)

Looking at the daily chart we can see that the 1.50 level has become a key one to monitor for support if there is ever a strong pullback. A dip below 1.50 would revive the bearish trend. A bullish market however might not pull back to 1.50. 1.5250 and 1.55 are both key pivots to monitor for support, especially if he daily RSI is back near 50.

GBP/USD Weekly Chart 5/14
GBP/USD Weekly Chart 5/14
(click to enlarge)

While cable’s sharp rally should keep us bullish on the pair, we should remember that the FOMC is still more hawkish than the BoE even though the BoE sounded optimistic in its latest inflation report. The situation with the USD is that economic data has not supported the FOMC’s optimistic outlook. Well, we don’t know if UK’s economy will in fact be aligned with what the BoE projected, so it would be premature to think that the BoE is more hawkish than the FOMC.

Key Resistance Levels:
With that in mind, we should limit the current bullish outlook to the 1.60 level. The 50% of the decline since July 2041 will be around 1.5877. This would be a conservative bullish outlook. Then 1.60 is a psychological handle in the middle of the 100-, and 200-day SMA. Then, the most aggressive outlook could be up to the 1.6187, 61.8% retracement level.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.