The pound might be in for more gains against the dollar this week, as GBP/USD has just pulled back to an area of interest visible on its shorter-term time frames. On the 1-hour chart, there is a rising trend line connecting the lows of the price, indicating that the uptrend for the pair is still intact.
A test of this trend line seems ready to take place within the week, thanks to weaker than expected UK BRC retail sales monitor. The report showed a 1.0% annualized decline, erasing part of the 3.9% gains seen in the previous month. This pushed GBP/USD from the 1.6730 area below the 1.6650 minor psychological level in today’s Asian trading session.
However, a bounce from the trend line could take place as this support zone lines up with a Fibonacci retracement level. In particular, the 38.2% Fibonacci retracement level is at the 1.6600 major psychological handle while the 50% Fibonacci retracement level is at the 1.6550 minor psychological support. These two levels are still within the trend line support zone.
GBP/USD Uptrend Continuation
Stochastic (14,3,3) is in the oversold region on the 1-hour time frame, suggesting that pound bears are exhausted. Pound bulls could take charge soon and push the pair back up to new highs if buying momentum is strong enough.
In addition, a bullish divergence can be seen, as the oscillator made lower lows but the price made higher lows. This is a classic trend continuation signal, suggesting that the current uptrend will resume sooner or later.
A bounce from the 1.6600 area could take the pair back to its recent highs around 1.6700 or beyond. This depends on how the UK inflation reports and manufacturing production data turns out today, with stronger than expected results likely to push GBP/USD higher up the charts.
Bear in mind that risk appetite is still a little shaky so far, as the missing Malaysian Airlines plane is keeping uncertainty present in the markets. Terrorism angles are being explored and the likelihood of this event is preventing traders from piling on their risk-on positions. Aside from that, USDX has just bounced off a key technical support, suggesting that the safe-haven currency could stay afloat in the near term.
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