GBP/USD Forecast: Potential for a rebound above 1.2600 on weak US GDP

GBP/USD has turned positive on the day after dipping below 1.2500 earlier.
Near-term technical outlook suggests that the recovery could extend.
An upbeat US Q1 GDP print could limit the pair's gains.

Eren Sengezer FXStreet

After having dropped below 1.2500 for the first time since July 2020 in the early European morning, GBP/USD has managed to erase its daily losses to turn positive on the day above 1.2550. The pair remains oversold in the near term and an extended correction could be witnessed in case the greenback loses its strength on an uninspiring growth report.

Following the Bank of Japan's (BOJ) decision to leave its policy settings unchanged in the Asian session, the BOJ-Fed policy divergence allowed the dollar to outperform its rivals. In the European session, the improving market mood, as reflected by a 0.8% jump seen in the UK's FTSE 100 Index, is causing the dollar to lose interest while helping the British pound find demand.

In the second half of the day, the first-quarter Gross Domestic Product (GDP) growth data from the US will be watched closely by market participants.

The market forecast stands at an annualized growth of 1.1% in the first quarter. Unless the GDP reading surprises to the upside, GBP/USD could continue to edge higher on profit-taking. Furthermore, the 1.7% increase in the S&P Futures points to a strong Wall Street opening, which could make it even more difficult for the dollar to preserve its strength.

On the other hand, a stronger-than-expected GDP print could cap the pair's recovery gains as it would reaffirm the Fed's aggressive tightening stance.

GBP/USD Technical Analysis

On the four-hour chart, the pair is trying to hold above the descending trend line coming from April 22, which is currently located at around 1.2530. In case the next four-hour candle closes above that level, the pair could extend its recovery toward 1.2600 (psychological level) and 1.2630 (20-period SMA).

In the meantime, the Relative Strength Index (RSI) indicator stays below 30, showing that the pair is yet to correct its oversold conditions.

On the downside, a daily close below 1.2500 (psychological level, static level) could be taken as a bearish development and open the door for additional losses toward 1.2460 (static level from July 2020) and 1.2400 (psychological level).

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Author

Eren Sengezer

FXStreet

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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