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GBP/USD Recovers and Rises above 1.5900

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The pound has risen for a second day against the dollar, after dropping below the key support level of 1.5875. There’s an important economic data out of UK in the week ahead, which is likely to have a significant impact on the direction of the pair, including the employment report and the BoE Quarterly Inflation report, both on Wednesday.

The failure again last week to break above the downtrend trend line suggests this is going to continue for now, roughly around the psychological level of 1.6000. The daily chart also confirms this indecision, although it better highlights the slight bullish bias. Furthermore, my opinion is that the bears are losing momentum since positive divergence is identified between the MACD, the RSI and the price action. Positive Divergence occurs when price makes new lows, while the indicator shows higher bottoms, as shown in the chart below. Therefore, with the above in mind, I would expect the price to retest the psychological level of 1.6000, which includes the descending trend line and the 50-period SMA on the daily chart.

Alternatively, if we see the key support level of 1.5875 level broken, it should find further support below the 1.5800 barrier, around the 1.5750, a strong technical level for the bulls.

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