GBP/USD Forecast: Technicals point to additional recovery gains

GBP/USD has managed to hold its ground despite broad-based USD strength.
UK labour market data seems to be helping the British pound find demand.
Eyes on Brexit headlines, October Retail Sales data from US.

Eren Sengezer FXStreet

GBP/USD has regained its traction early Tuesday and the technical developments suggest that the pair could extend its recovery unless fundamental drivers hurt the British pound.

Although GBP/USD closed virtually unchanged on Monday, the fact that the pair's losses were limited in the face of broad-based USD strength highlighted the pound's resilience at the start of the week.

Some inspiring Brexit headlines seem to have helped GBP/USD shake of the bearish pressure. European Commission Vice President Maros Šefčovič said on Monday that the latest talks with UK Brexit Minister Lord David Frost were much better than the ones they had last week. Additionally, British Prime Minister Boris Johnson noted that an agreement with the EU was possible and added that they hope to reach a "negotiated settlement" on the Northern Ireland protocol.

Meanwhile, Bank of England Governor Andrew Bailey told the UK Parliament Treasury Select Committee on Monday that he was "very uneasy" about the inflation situation and noted that all policy meetings were "in play" for a rate hike.

On Tuesday, the UK's Office for National Statistics reported that the ILO Unemployment Rate edged lower to 4.3% in September from 4.5%. More importantly, Average Earnings Including Bonus arrived at +5.8%, surpassing the market expectation of +5.6% and confirming the view that the labour market remains tight in the UK.

Later in the day, October Retail Sales data from the US will be looked upon for fresh impetus. As it currently stands, the technical outlook and renewed Brexit optimism point to additional recovery gains unless the US data drives US Treasury bond yields higher and boosts the dollar.

GBP/USD Technical Analysis

On the four-hour chart, the Relative Strength Index (RSI) indicator climbed above 50, suggesting that sellers are staying on the sidelines. Additionally, GBP/USD is trading above the 20-period SMA and the descending regression channel coming from late October.

On the upside, initial resistance is located at 1.3470 (50-period SMA) ahead of 1.3500. With a daily close above the latter, the pair could target the strong static resistance that seems to have formed at 1.3570.

Supports could be seen at 1.3400 (psychological level, 20-period SMA), 1.3360 (static level, 2021 lows, lower limit of the regression channel) and 1.3300 (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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