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GBP/USD Daily Forecast – Sterling Pauses Following Wednesday’s Bullish Breakout

Jignesh Davda

The British pound surged higher against its major counterparts on Wednesday although the momentum has subsided in early European trading today.

Sterling had shown signs of resilience ahead of the upward break as the pair limited declines despite a stronger dollar and talks of a rate cut in the UK. The pair began its upward journey at the start of the week after testing a major support level. Bullish momentum gained following an upbeat UK jobs report on Tuesday.

The markets will now look to Friday’s data which is the last major release ahead of next week’s Bank of England meeting. Analysts are calling for a rebound in services and manufacturing PMI data after it fell short of expectations in the prior two readings.

Before Friday’s data, the focus for the session ahead will be on the European Central bank meeting. The ECB meeting does not typically have a direct impact on Sterling, however, it tends to move the dollar which in turn can influence the pound to dollar exchange rate.

Technical Analysis

GBP/USD broke higher from a downward channel yesterday that had encompassed price action since the start of the year. The bullish break signals a trend reversal and potential for more upside.

Bullish momentum has slowed and a range has formed. There is potential for a slight pullback in the pair. The first level of support comes in at 1.3109. This area contained the rally ahead of last week’s UK retail sales report. A drop below the level targets the 200 moving average on a 4-hour chart, currently residing at 1.3077.

To the upside, resistance for the pair comes in at 1.3171. This level held the pair lower earlier in the month on a 4-hour close basis.

Price action in the session ahead might be somewhat muted ahead of Friday’s PMI data. But dips in the pair are likely to be bought as buyers look to step in and sellers aim to cover.

Bottom Line

  • GBP/USD is consolidating following yesterday’s bullish breakout.
  • Short-term dips are likely to be bought considering the technical development.
  • Friday’s PMI data will be important and a volatile reaction is expected.

This article was originally posted on FX Empire