GBP/USD: Every small dip is a buying opportunity

The British Pound has continued to display strength with a broader weakness in dollar. The pound surged to nearly three-year high of 1.4235 and may look to extend higher as the fundamental landscape has undergone little change while US Federal Reserve Chair Jerome Powell reiterated that interest rates will remain low and the Fed will keep buying bonds to support the US economy, which is a long-term negative factor for the dollar. Also, UK government is taking steps to ease the lockdown in a staggered manner, keeping investors' interest intact in pound.

But technically, as GBP/USD moves to its highest level in nearly three years, the topside barriers have become harder to identify. That being said, the next major level of resistance might be derived from price action in early 2018. Ranging from 1.4298 to 1.4377 the zone coincides with a series of swing highs from January and April 2018. With that in mind, traders with bullish exposure may consider raising protective stops or reducing exposure around the area in the event bears make a stand.

As seen in the daily chart, GBPUSD has witnessed a Rising Channel breakout at 1.3985 mark whose pattern target is 1.4350. However, the pair has found strong resistance at 1.4235 which is a key 127.2% Fibonacci Projection level and RSI indicator stood at 86.9 which is in overbought position. Hence, we may experience small dip in the pair on account of profit booking at higher levels. Nevertheless, in our opinion weakness derived from overhead resistance may be short lived as there is currently little evidence to suggest GBP/USD will reverse lower over the longer-term.

Many of the shackles from months of Brexit uncertainty have been removed and it looks like the pound is making up for lost time. So, overall view for GBPUSD is bullish amid weakness in US dollar index. Hence, we suggest that every dip is a buying opportunity in the pair. Supports are located at 1.4080- 1.4000-1.3950. While, on the upside consistent trading above crucial resistance 1.4235 will open doors for pattern target of 1.4350.