- GBP/USD makes a solid recovery from below the 1.3000 level amid widespread USD weakness.
- The fundamental backdrop favors USD bulls and should cap the pair’s upside.
- Sustained strength above 1.3100 is needed to support prospects for any further gains.
The GBP/USD pair has achieved strong positive traction on Wednesday and has snapped a four-day losing streak near the yearly low. The momentum has extended through the middle of the European session and has pushed GBP/USD to a fresh weekly high around the 1.3065 region.
From a technical perspective, repeated failures to find acceptance below the psychological 1.3000 level prompted some short covering around the GBP/USD pair amid widespread US dollar weakness. That said, any significant recovery seems elusive amid aggressive expectations around the Fed. Markets seem convinced that the US central bank would tighten monetary policy at a faster pace to limit inflation and has been pricing in several rate hikes. rates of 50 basis points. This supports the prospect of some buying at lower USD levels, which should cap GBP/USD.
Therefore, any further move higher is more likely to face stiff resistance and weaken near the 1.3100 confluence hurdle, which encompasses the 200-period SMA on the 4hrs chart and a descending trend line. This level should act as a pivotal point and help determine the short-term path. A convincing break above that level would suggest that the GBP/USD pair has formed a solid base just below the 1.3000 level and paves the way for further gains. The next relevant hurdle is in the 1.3145-1.3150 area, above which the bulls could aim to retake the round 1.3200 level.
On the downside, the 1.3000-1.2990 area could continue to act as immediate support. Some selling below the yearly low, around the 1.2975-1.2970 region, would make the GBP/USD pair vulnerable to accelerate decline towards a test of the 1.2910-1.2900 support zone. The move down could extend towards the next relevant support near 1.2850 before GBP/USD finally falls to the 1.2820 area.
GBP/USD 4 hour chart
GBP/USD additional levels
Source: Fx Street
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