GBP/USD

GBP/USD Upside Appears Limited with Major Resistance in Play

The dollar is under slight pressure to start the new week after attempting to recover last week. GBP/USD has gained about a quarter percent shortly after the European open after posting a daily loss of about 1% on Friday.

While the pair displayed somewhat volatile swings last week, it’s important to note that a range has been playing out for most of the month. This range type of trading could continue in the week ahead as there isn’t any economic data scheduled for release that stands to have a market impact.

Considering that there is an important technical resistance area in play for GBP/USD, the pair might be at risk of a pullback at this stage. This will largely depend on the dollar as it has been dominating fluctuations in all of the major currency pairs since around mid-March.

Technical Analysis

GBPUSD 4-Hour Chart

GBP/USD posted a very strong gain in July but is set to close August out mostly unchanged.

It’s not unusual to see a range develop after a strong move higher, but it’s also not unusual to see a range prior to a reversal.

With several of the major currency pairs testing important technical areas in a correlated effort, a reversal is certainly a possibility for GBP/USD.

The major hurdle for the exchange rate falls at 1.3260, which blocked rally attempts twice last week. Both attempts at the level accompanied a sharp fall.

The importance of the 1.3260 level is best seen on a monthly chart. It blocked rallies in both February and December last year, and the pair has not closed above it, on a monthly basis, in over two years.

For the session ahead, resistance for the pair is seen at 1.3163 as the price point capped gains back in late July and earlier this month.

To the downside, the first level of support comes from a rising trend channel that has encompassed price action throughout August. Slightly below it, further support is seen from a horizontal level at 1.3015.

Bottom Line

  • The upward momentum in GBP/USD appears to have stalled out in August after the pair gained about 5.5% in July.
  • Major resistance is in play at 1.3262, the pair has not closed above this level on a monthly chart since May 2018.

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