. GBP/USD Surges Above 1.2950 as Weaker US Dollar Sparks Bullish Momentum

GBP/USD Surges Above 1.2950 as Weaker US Dollar Sparks Bullish Momentum

GBP/USD Surges Above 1.2950 as Weaker US Dollar Sparks Bullish Momentum

27 Jul 2023

A Weaker US Dollar Boosts GBP/USD Above 1.2950.

Fundamental Overview

The GBP/USD exchange rate is on the rise for the third consecutive day, soaring above 1.2950. The ongoing decline of the US Dollar from its two-week high is contributing to this positive momentum for the pair. However, as the chances of the Bank of England (BoE) raising rates more aggressively are diminishing, caution is advised for the bulls.

During the European trading hours on Thursday, GBP/USD gained bullish momentum, surging close to 1.3000 for the week. The pair has been further bolstered by the risk-positive market environment, especially in the lead-up to the release of US Gross Domestic Product (GDP) data.

The Federal Reserve recently implemented a 25 basis points interest rate hike on Wednesday, which has put considerable selling pressure on the US dollar (USD), as observed in the markets.

A significant USD selloff occurred following FOMC Chairman Jerome Powell’s reluctance to confirm the need for further rate hikes, and his acknowledgment of policy being restrictive during the post-meeting news conference. Reflecting the positive market sentiment, S&P 500 Futures and Nasdaq Futures saw gains of 0.6% and 1.2%, respectively, during the European session.

The US Bureau of Economic Analysis (BEA) predicts a second-quarter annualized GDP growth of 1.8%. If the actual GDP growth falls considerably lower, around 1.5%, the USD may lose further ground, allowing GBP/USD to continue its upward trajectory for the week. Conversely, a GDP reading of around 2% could encourage the USD to rebound, limiting the pair’s upward potential. However, if risk flows continue to dominate the financial markets during the American session, the GBP/USD pair is expected to maintain its strong position.

GBP/USD Technical Analysis Daily Chart

Technical Overview

  • GBP/USD is currently trading within an upward channel.
  • GBP/USD is positioned above all Simple Moving Averages (SMA).
  • The Relative Strength Index (RSI) indicates bullishness, while the Stochastic oscillator suggests a positive trend.
  • Immediate Resistance level: 1.2987
  • Immediate support level: 1.2941

How to Trade GBP/USD

After witnessing a sharp rise, the GBP/USD price encountered resistance and experienced a subsequent decline. However, a bullish engulfing pattern formed in the 61% Fibonacci zone led to a renewed upward movement. Currently, the pair is trading at a resistance level, and a breakthrough beyond this level could signal further upside potential.

Trade Suggestion

  • Entry at 1.3007
  • Take Profit at 1.3063
  • Stop Loss at 1.2964

Conclusion

The GBP/USD pair’s recent rise above 1.2950 has been bolstered by the weakening US Dollar and positive market sentiment. While bulls should remain cautious due to decreasing chances of aggressive rate hikes by the Bank of England (BoE), the pair’s technical analysis indicates potential upside. Traders should closely monitor upcoming GDP data releases and market sentiment for further insights into GBP/USD’s performance in the coming days.

FAQs (Frequently Asked Questions)

1. What is driving the GBP/USD exchange rate rise?

The continuing decline of the US Dollar from its two-week high is driving the GBP/USD exchange rate higher.

2. Why should bulls exercise caution despite the GBP/USD surge?

Bulls should exercise caution as the chances of the Bank of England (BoE) raising rates more aggressively are decreasing.

3. What contributed to the bullish momentum of GBP/USD during European trading hours?

GBP/USD gained bullish momentum due to the risk-positive market environment, coupled with the anticipation of US Gross Domestic Product (GDP) data releases.

4. How did the Federal Reserve’s interest rate hike affect the USD?

The recent 25 basis points interest rate hike by the Federal Reserve put significant selling pressure on the US dollar (USD).