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GBP/USD Consolidation Continues Below 200-Day Moving Average

The outlook for Sterling is positive although a technical area has held the pound to dollar exchange rate lower since Thursday.

There were two failed attempts at the 200-day moving average in GBP/USD in April and the indicator is once again blocking the upside.

Sterling has been an outperformer over the past few weeks, posting the second-largest gains among the major currencies for the month thus far, falling behind only the New Zealand dollar.

This is somewhat unusual as the commodity currencies typically perform well during times of increased risk appetite, which is what is currently driving the markets, while currencies like the pound don’t generally have a strong correlation to swings in risk sentiment.

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GBP/USD bulls are optimistic about an economic rebound in the UK and tomorrow’s GDP report might confirm a strong step towards a recovery. GDP is expected to have grown at a pace of 5% in May following a record contraction of 20.4% in April.

Further underpinning the exchange rate is a broadly weaker dollar as the greenback has declined against all of its major counterparts in the month thus far. The trade-weighted dollar index (DXY) is down nearly 1% month to date.

Technical Analysis

GBPUSD Daily Chart
GBPUSD Daily Chart

There are two main hurdles in place, creating a resistance confluence for GBP/USD. The first, as mentioned, is the 200-day moving average. In addition to the indicator, there is a horizontal level at 1.2650.

The daily chart shows two doji candles from late last week. These candles suggest exhaustion, or indecision, and often precede a reversal in trend. For this reason, it wouldn’t be surprising to see the pair pull back a bit from current levels.

Downside support for the pair is seen at 1.2590 for the session ahead. A break of it would suggest that a larger correction may play out.

To the upside, a sustained break above 1.2650 stands to accompany a renewal of upside momentum with a first potential target near the June highs at 1.2800.

Bottom Line

  • GBP/USD has shown strength over the past few weeks but a technical hurdle has caused the uptrend to pause.

  • GDP data will be released from the UK tomorrow and analysts expect it will show a sharp rebound in growth for May.

For a look at all of today’s economic events, check out our economic calendar.

This article was originally posted on FX Empire

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