GBP/USD Forecast: Pound approaches resistance that holds the key for further gains
- GBP/USD has continued to push higher after posting gains for the third straight day.
- The greenback stays on the back foot amid improving sentiment.
- Retail Sales in the UK rose at a stronger pace than expected in January.
GBP/USD has managed to edge higher early Friday after having closed the previous three days in the positive territory. The technical outlook suggests that the pair is close to turning technically overbought and investors might want to book their profits ahead of the weekend amid the ongoing geopolitical uncertainty.
Although safe-haven flows dominated the financial markets on Thursday, GBP/USD preserved its bullish momentum as falling US Treasury bond yields made it difficult for the greenback to attract investors. The benchmark 10-year US T-bond yield fell more than 3% and the US Dollar Index closed the day flat below 96.00.
The positive shift witnessed in market sentiment on heightened hopes for a de-escalation of the Russia-Ukraine crisis is allowing GBP/USD to hold above 1.3600 in the early European session.
US Secretary of State Anthony Blinken reportedly accepted an invitation to meet with Russian Foreign Minister Sergei Lavrov next week. This development revived optimism that Russia is looking to resolve the conflict with Ukraine through diplomacy. Furthermore, Ukraine's defence ministry said that the probability of a "large-scale escalation" was estimated to be low.
Nevertheless, market participants might want to move to the sidelines before the end of the day as Russia is reportedly planning to conduct strategic military drills over the weekend. Profit-taking could limit GBP/USD's upside in the second half of the day but the pair's near-term outlook remains bullish barring a technical correction.
Meanwhile, the data published by the UK's Office for National Statistics showed on Friday that Retail Sales in January rose by 1.9% on a monthly basis. This reading surpassed the market expectation for an increase of 1% and helped the pound stay resilient against the dollar.
GBP/USD Technical Analysis
GBP/USD rose toward the key 1.3640 resistance early Friday but this level stayed intact on Thursday and caused the pair to retreat to 1.3600. Meanwhile, the Relative Strength Index (RSI) indicator on the four-hour chart closes in on 70, suggesting that the pair is on the verge of turning technically overbought
In case GBP/USD rises above 1.3640 and starts using it as support, 1.3660 (static level, January 20 high) aligns as the next hurdle ahead of 1.3700 (psychological level).
On the downside, 1.3600 (static level, psychological level) could be tested with a technical correction. If that support fails, additional losses toward 1.3560 (200-period SMA) and 1.3530 (100-period SMA) could be witnessed.
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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.
