The US dollar came under pressure as traders from the UK and US returned from their holiday on Tuesday, resulting in a sharp push higher in GBP/USD.
The currency pair made a decisive push above important resistance at 1.2266 to trade at highs not seen in nearly two weeks.
Investors have sold dollars in favor of more risky currencies like the Australian or New Zealand dollar as the markets continue to show an appetite for risk. This has lead to broad-based pressure on the dollar which has benefited all of the major currencies.
The S&P 500 pushed sharply higher yesterday with SPY rallying above an important resistance confluence stemming from the $300 level and the 200-day moving average. The US index closed the day just below $300 but an early day rally in European equity markets today suggests the markets remain in risk-on mode.
Economic data is light for the session ahead. On Thursday, the US will release GDP figures for the first quarter. Analysts are expecting the report to show a 4.8% decline in growth in the first three months of the year.
Yesterday’s upside break in GBP/USD has set a bullish tone and near-term dips are likely to be bought as the dollar continues to fall.
A horizontal level at 1.2266 was breached yesterday and the level is considered significant. It held the pair higher in late April and early May and then held it lower last week.
Buyers are likely to defend the level in the event the pair dips toward it.
To the upside, the next major area of resistance is seen at 1.2417 as the price point held the pair lower on a recovery earlier this month, on a daily close basis.
Beyond that, further resistance at 1.2486 is considered to be a major hurdle as the same level capped the recovery in late March.
- GBP/USD price action signals more upside potential with bullish targets at 1.2417 followed by 1.2486.
- The dollar is weighed by strong risk appetite. The commodity currencies have gained the most among the major currencies in this leg of dollar weakness.
- GDP figures for the first quarter will be released out of the US on Thursday.
For a look at all of today’s economic events, check out our economic calendar.
This article was originally posted on FX Empire
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