GBP/USD Forecast: Plummeting after poking into overbought territory
|- The GBP/USD turned sharply lower after reaching a 7-week high.
- The strength of the US Dollar and end-of-month flows are behind the move.
- The chart shows that the pair hit overbought territory just before the downturn.
The GBP/USD is trading just above $1.4100, falling 0.84% on the day and around 140 from the highs. The US Dollar is recovering across the board, recovering from the falls seen on Monday. The greenback had retreated amid hopes that tensions around trade would be resolved. US Treasury Secretary Steven Mnuchin was optimistic about reaching an understanding with China. President Trump's economic adviser Peter Navarro, a hawk on trade, said a good deal could be reached on NAFTA.
The American stance on trade did not change today, but the greenback's fortunes improved. Besides, end-of-month flows are also in play. Portfolio managers are adjusting ahead of the long Easter weekend, the end of the quarter and in Japan, the end of the fiscal year.
In the UK, the Financial Policy Committee released its report and it consisted of warnings that the financial services sector may suffer from Brexit. This is not news though: similar warnings have been voiced in the past.
GBP/USD Technical Analysis - Not overbought anymore
The RSI on the daily chart shows that the pair reached overbought territory, touching the 70 level after the sharp rise to $1.4245, a level that was seen on Monday and today. The RSI still points to gains, standing around 59. Momentum is also positive despite the fall, and the pair is well above the 50-day Simple Moving Average.
The break under the $1.4220 level was quite significant as it was a confluence of many technical lines.
The March 16th high of $1.4150 turns into resistance, followed by the $1.4245 peak seen earlier in the day. The 2018 peak of $1.4342 follows.
Looking down, support is found at $1.4070, the high of February 26th serves as a line of support. The round number of $1.4000 is next. Apart from being a psychological barrier, it also capped the pair earlier in March. $1.3935 is the next level, also serving as resistance in March.
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