GBP/USD tests uptrend line but obstacles ahead

GBPUSD is climbing for a fourth straight day on Wednesday, but the gains have been limited, adding just 1% from last Thursday’s lows. Broader dollar softness has helped cable to bounce higher but worries about the forthcoming UK budget and whether it will tackle Britain’s worsening debt problem are keeping the bulls in check.

Nevertheless, there’s been a notable shift in the near-term bias from bearish to bullish. The RSI is rising towards 50 but is at risk of losing steam even before crossing into bullish territory. The stochastics, on the other hand, are up sharply, pointing to a strong positive momentum.

However, it remains to be seen if the upside momentum is sufficient to push GBPUSD above the ascending trendline taken from the January trough, and more importantly, above the 50-day simple moving average (SMA) at 1.3461. Breaking above this area would bring into range the 1.3500 handle, although the overlapping 20-day SMA could make it difficult for the bulls to pierce through it. Clearing this hurdle, though, would add traction to the rebound, potentially extending it all the way until the September high of 1.3725.

To the downside, there is immediate support at the 23.6% Fibonacci retracement of the January-July uptrend at 1.3389. If breached, the 1.3330 level, which twice halted the slides in September, could be tested again. Lower down, the focus would turn to the 38.2% Fibonacci of 1.3142, which corresponds with the August trough, as well as the 200-day SMA.

To sum up, GBPUSD is attempting to get back on the north side of the ascending trendline but it’s unclear if there’s enough impetus for a convincing break higher.