GBP/USD Forecast: Holding Support will be Key

The GBP/USD exchange rate rallied to a high of 1.2362 over the course of the past 24 hours and has since settled back at 1.2312 at the time of writing. Analysts and technical forecaster Richard Perry asks whether Sterling has what it takes to push higher.

An impressive rally on Cable has threatened to change the outlook. A strong positive candlestick has broken a three week downtrend and seen the market close above resistance at $1.2295.

Momentum indicators are swinging higher with near term positive signals.

The question is whether this is a rally that begins a phase of sterling strength versus the dollar, of whether it is a move that will flounder again.

We note the bull candles of last week were followed by a renewed corrective slip but this formed a higher low at $1.2160 again.

Holding above this support (and forming another higher low will now be key for Cable as the market just begins to slip back again this morning.

Ideally the bulls will be looking to hold on to breakout support at $1.2295. The RSI is now into the 50s again and for this near term bull move to be sustainable, this needs to become a consistent feature.

The more optimistic bulls will be eyeing the lower high resistance at $1.2465. The hourly chart shows a support band now $1.2245/$1.2295 as a near term area for the next higher low, to maintain the improving outlook.

Dollar Finds a Bid as U.S. Threatens Sanctions on Chinese Officials

As has so often been the case in recent weeks, unrestrained hope of economic recovery that comes with a vaccine is short-lived.

Traction in the breakouts for risk appetite is difficult to maintain as markets always have a “but” as a restraining caveat.

COVID-19 vaccine hopes and talk of more stimulus from Japan are helping to hold a degree of positive market sentiment, but the prospect of U.S. sanctions on China are looming like dark clouds on the horizon.

The US is opposed to China extending the security legislation in Hong Kong.

Sanctions are being considered which would threaten Hong Kong’s status as a financial hub and would significantly ramp up tensions between the two economic superpowers of the world.

According to President Trump, the US is doing something and will announce more at the end of the week. Subsequently, whilst equities are still climbing slightly today, there is a more mixed outlook for risk today.

US Treasury yields are ticking lower, whilst the dollar is clawing back some of yesterday’s losses. The safe haven yen is also regaining some lost ground on higher risk cross currencies, whilst oil is giving back some recent gains too.

For now these moves are only slight, but if the US pushes hard for sanctions on China, it would be something to really drag on market sentiment towards the end of the week.