- Taking profit on the dollar helps the GBP / USD to recover.
- The short-term technical setup remains firmly skewed in favor of bearish traders.
- The 1.3800 mark is likely to limit any further rally beyond the 1.3760-50 area.
GBP / USD remained weak in the European session, although it managed to recover more than 50 pips from the lows in several weeks touched earlier this Wednesday at 1.3672. It is trading at 1.3715 / 20, prior to the American session, falling 0.18% on the day.
A positive rally in US equity futures led to some profit taking around the US dollar. This, coupled with the upbeat UK PMI report, extended some support and helped GBP / USD attract some buying near the 1.3675 / 70 region.
Previously the UK inflation figures for February had been below expectations contributing to the weakness of the pound. Analysts at Capital Economics affirmed that the surprise drop in the Consumer Price Index from 0.7% in January to 0.4% in February (0.8% was expected), reflects the deflationary effects of the coronavirus restrictions and will delay the rebound to 2 % and could lead markets to reconsider their view that interest rates will rise next year.
Technical overview
From a technical perspective, GBP / USD confirmed a bearish break through 1.3800 on Tuesday. A subsequent drop below the 1.3760 / 50 region paved the way for more lows. That being said, the oversold RSI (14) on the hourly charts prevented traders from placing further bearish bets and triggered some intraday short hedging movement. However, the bearish oscillators on the day chart support the prospects for an extension of the recent bearish trajectory.
Therefore, any further recovery towards the breakout point of the 1.3760 / 50 support could still be seen as a selling opportunity. This, in turn, should contain the gains for GBP / USD near 1.3800.
On the other hand, renewed weakness below 1.3700 now appears to find some support near the daily lows, around the 1.3675 / 70 region. Some subsequent selling has the potential to drag the pair towards the 100 day SMA support near 1.3600.
GBP / USD day chart
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