- GBP/USD recovers for the second day in a row and hits a one-week high on Thursday.
- UK government mini-budget talks boost sterling and offer support.
- The US CPI recovery caps the pair near 1.1300.
The GBP/USD pair gains strong positive traction for the second day in a row on Thursday and builds on the previous day’s nice rebound from a nearly two-week low. The pair hits a one-week high, though teetering near the 1.1300 mark after the release of US consumer inflation figures.
Sterling gets a big boost amid talk of the new UK government possibly rolling back its sweeping tax cuts announced in September’s mini-budget. However, the positive intraday move runs out amid a strong pickup in US dollar demand, bolstered by a stronger US CPI report and Fed expectations.
From a technical point of view, the GBP/USD pair found decent support on Wednesday near the 50% fibonacci retracement level of the recent strong recovery from an all-time low. A subsequent move beyond the 100-period SMA on the 4-hour chart triggered some technical selling and contributed to the strong intraday move higher.
However, the bulls face a rejection near the 200 hourly SMA, which is currently pegged near the 1.1300 round figure and should act as a pivot point. Meanwhile, the technical indicators on the daily chart – although they have recovered from the negative territory – have yet to gain any significant traction and warrant caution for the bulls.
Therefore, it will be prudent to wait for the strength to sustain beyond 1.1300 before traders begin to position themselves for any further appreciation moves. The GBP/USD pair could then accelerate the momentum towards the next relevant hurdle near the 1.1370 area before attempting to recapture the 1.1400 signal.
On the other hand, the 1.1120-1.1115 horizontal zone seems to protect the immediate downside ahead of the 1.1100 level. Any further decline could find good support near the 1.1085 area (100-period SMA 4hrs chart), closely followed by the 38.2% Fibonacci level, around the 1.1065-1.1060 area.
A convincing break below the latter suggests that the two-day uptrend has run out of steam and the bias is in favor of the bears.
GBP/USD 4-hour chart
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Key levels to watch
Source: Fx Street
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