GBP/USD Forecast: Pound needs to overcome 1.3260 to extend recovery

GBP/USD has gained its traction after dropping below 1.3200 on Monday.
Irish PM says Brexit talks are on track for progress.
The British pound could lose strength if the UK introduces additional Omicron-related restrictions.

Eren Sengezer FXStreet

GBP/USD has gathered recovery momentum after dipping below 1.3200 on Monday and continues to edge higher in the early trading hours of the European session. Some inspiring Brexit headlines seem to be helping the British pound find demand but the pair could struggle to stretch higher if the UK decides to impose additional Omicron-related restrictions.

Earlier in the day, Irish Prime Minister Micheál Martin told Newstalk radio that the talks between Britain and the European Union (EU) were on track for progress. "We were on a track - the European Union and the United Kingdom. I think we still are. I think Liz Truss gets it in terms of what is required," Martin said.

On Monday, British Prime Minister Boris Johnson said that they were looking at "all kinds of things" to slow the spread of the Omicron variant. Several news outlets report that new restrictions could go into effect for two weeks to a month starting from December 28.

On the other hand, the modest dollar weakness is helping GBP/USD stay afloat in the positive territory. The US Dollar Index is down 0.15% on the day at 96.36 and investors will remain focused on risk perception in the absence of high-tier data releases from the US. US stocks futures are edging higher on Tuesday, suggesting that a rebound in Wall Street could make it difficult for the dollar to gather strength in the second half of the day.

GBP/USD Technical Analysis

Although the Relative Strength Index (RSI) indicator on the four-hour chart climbed above 50 early Tuesday, GBP/USD continues to trade below the 100-period SMA, which is currently located at 1.1360. In case the pair rises above that level and confirms it as support, the next target on the upside aligns at 1.3300 (psychological level) ahead of 1.3340 (200-period SMA).

On the flip side, the 50-period SMA forms dynamic support at 1.3240 ahead of 1.3200 (psychological level) and 1.3170/1.3160 area (static levels).

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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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