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GBP/USD Forecast: Move beyond 1.2365 confluence hurdle to open room for additional gains

  • Investors quickly looked past dovish comments by BoE’s Saunders on Thursday.
  • Some renewed USD selling bias assisted GBP/USD to regain positive traction.
  • Bulls seemed rather unaffected by concerns over escalating US-China tensions.

The GBP/USD pair regained positive traction on Thursday and reversed a major part of the previous day's negative move. The British pound remained depressed through the first half of Thursday's trading action and was pressured by some dovish comments by the Bank of England (BoE) policymaker Michael Saunders. Speaking about monetary policy, Saunders argued that it was less risky to ease the policy too much in the current environment and also did not rule out the possibility of negative interest rates. This comes on the back of fresh Brexit jitters and took its toll on the sterling, albeit the emergence of some fresh US dollar selling pressure extended some support to the major.

The optimism over a potential COVID-19 vaccine remained supportive of the upbeat market mood and continued denting the greenback's relative safe-haven status. The USD bulls failed to gain any respite from Thursday's mixed US economic releases, which showed that the US economy contracted by 5% annualized rate during the first quarter of 2020 as compared to 4.8% estimated previously. Adding to this, the Initial Weekly Jobless Claims came in at 2.12 million as against 2 million expected. Meanwhile, Durable Goods Orders fell less than anticipated and came in to show a decline of 17.2% in April, though did little to impress the USD bulls.

The pair rallied over 100 pips intraday and finally settled just a few pips below session tops, comfortably above the 1.2300 mark. The momentum extended through the Asian session on Friday, rather unaffected by concerns about a further escalation in diplomatic tensions between the United States and China. It will now be interesting to see if the pair is able to capitalize on the positive move or runs into some fresh supply at higher levels as the focus now shifts to the US President Donald Trump's news conference regarding China's move to tighten control over the city of Hong Kong. It is worth recalling that China’s parliament on Thursday endorsed a national security law for Hong Kong.

There isn't any major market-moving economic data due for release from the UK and hence, the pair remains at the mercy of the USD price dynamics. Later during the early North American session, a slew of US economic releases will be looked upon for some trading impetus. Friday's US economic docket features the release of Core PCE Price Index, Personal Income/Spending data and Goods Trade Balance figures, which will be followed by Chicago PMI and revised Michigan Consumer Sentiment Index.

Short-term technical outlook

From a technical perspective, the pair needs to decisively break through the 1.2360-75 confluence hurdle before traders start positioning for any further near-term appreciating move. The mentioned region comprises of 200-period SMA on the 4-hourly chart and 50% Fibonacci level of the 1.2644-1.2076 downfall. A convincing breakthrough will set the stage for a move beyond the 1.2400 mark, towards testing 61.8% Fibo. level around the 1.2430-40 supply zone.

On the flip side, immediate support is pegged near the 38.2% Fibo. level, around the 1.2300-1.2290 region, which if broken might turn the pair vulnerable to slide back towards challenging the 1.2200 mark. The mentioned level coincides with 23.6% Fibo. level, which if broken might be seen as a fresh trigger for bearish traders. Some follow-through weakness below the 1.2180-70 horizontal support will reinforce the bearish bias and accelerate the fall back towards the 1.2100 mark en-route multi-week lows, around the 1.2075 region.

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Haresh Menghani

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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