After dropping to its lowest level since November 2020 at 1.2974 earlier in the week, GBP/USD has managed to stage a rebound. Although the broad-based dollar strength didn’t allow GBP/USD to gather further bullish momentum in the second half of the week, the pair ended up closing above 1.3050 to snap a two-week losing streak.

After rising more than 100 pips on Wednesday, GBP/USD extended its recovery to a fresh nine-day high of 1.3150 in the early European session on Thursday. With the European Central Bank (ECB) leaving its policy settings unchanged, however, the greenback regathered its strength and forced GBP/USD to turn south.

Nevertheless, the sharp decline witnessed in EUR/GBP following the ECB event suggested that the British pound was able to capture some of the outflows out of the euro. Hence, GBP/USD stabilized above 1.3050 on Easter Friday and registered modest gains for the week.

The fundamental outlook suggests that GBP/USD is likely to find it difficult to stage a steady recovery at least until markets are convinced of the BOE’s willingness to adopt a more aggressive tightening stance.

On the other hand, GBP/USD’s losses could stay limited in the near term as the British pound still remains a better alternative than the euro and the Japanese yen.

The Relative Strength Index on the daily chart stays below 50. Additionally, GBP/USD failed to close the day above the 20-day SMA on Wednesday despite the impressive recovery, highlighting bears' dominance in the near term.

Nevertheless, 1.3000 (psychological level, static level) aligns as strong support and sellers could see a decline toward that level as an opportunity to book their profits. In case fundamental drivers continue to weigh on GBP/USD and force a daily close below that level, the next bearish targets could be seen at 1.2920 (static level) and 1.2750 (static level).

On the upside, the 20-day SMA forms dynamic resistance at 1.3100 ahead of 1.3150 (Fibonacci 23.6% retracement of the latest downtrend) and 1.3230 (Fibonacci 38.2% retracement).

GBPUSD Expected For a Temporary Pull-Back

Apr 16 2022