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GBP/USD Shows Renewed Upward Momentum After Clearing Important Resistance

The British pound had been a bit of an under performer in late May but has gotten a boost this week, leading to a rally above 1.2500 for the first time in a month.

Sterling has benefited from a broadly weaker dollar as the greenback has been under steady pressure since the middle of May. The US dollar index (DXY) is down 3% since then, and about 5.5% from the March top.

Investors that initially fled to the dollar during the escalation of the Coronavirus escalation in March, are fleeing from it, in favor of riskier assets such as stocks, driven by the optimism of a recovery.

The pound has further gained on earlier news that Britain is progressing in its Brexit talks after reports of a compromise made with the EU regarding fisheries.

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Nationwide reported earlier today a 1.7% decline house prices in May from homes that they back with mortgages. It was the sharpest fall in more than a decade and follows a 0.9% gain last month. The annual rate of growth has slowed to 1.8% from 3.7% in the last reading as a result of the decline last month.

Technical Analysis

GBPUSD 4-Hour Chart
GBPUSD 4-Hour Chart

The technical break higher in GBP/USD is significant. The pair has cleared important horizontal resistance as well as the 61.8% Fibonacci retracement as measured from the late April high to the May low.

Further, there was previously a rising trend channel that had encompassed price action in the move from mid-May lows. The pair has also broken above the upper bound of this channel which is a sign of strength.

The renewal of strength puts the 1.2625 price point back into focus. This level served to hold the pair lower twice in April, and therefore has proven to be a major hurdle.

To the downside, dips may be shallow considering the recent upward momentum. Buyers are likely to step in ahead of the 1.2500 level to keep the pair supported.

Bottom Line

  • GBP/USD shows renewed upward momentum and has broken through a significant technical barrier in the last 24 hours.

  • The economic calendar is light in the day ahead, currencies are likely to take their direction from the stock markets where risk appetite continues to dominate.

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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