The GBP/USD currency pair is currently walking on thin technical fences, with the 1.3200 level acting as a common line in the sand and dividing point. As the pair tussles over this new threshold, bullish traders remain optimistic. They look for further upward impetus, particularly now with the big economic data points in the near-decimal future.
Technical Indicators
The 14-day Relative Strength Index (RSI) is indicative of a strong bullish trend, sitting well above the crucial level of 50. In the meantime, watch for a Golden Cross formation as the 50-day Simple Moving Average (SMA) approaches a crossover with the 200-day SMA from below.
The technical indicators are being monitored closely with an expectation that UK inflation could drop again in March. This expected fall would play a major role in swaying the Bank of England’s (BoE) monetary policy move this May. It can furthermore pave the way for a cut in interest rates.
Technical Indicators Suggest Bullish Momentum
In the last few trading sessions, GBP/USD has showed strength above each of the major daily SMAs. This lack of volatility indicates that a bullish sentiment is prevailing in the market. Currently, the duo is approaching the 1.3200 resistance level, which marks an important psychological level.
GBP/USD is struggling at 1.3200 resistance, said Dhwani Mehta, Asian Session Lead Analyst, FXStreet. It’s continued to tread firmly above all major daily Simple Moving Averages (SMA) as we approach the release of UK CPI. The 14-day Relative Strength Index (RSI) momentum indicator remains above 50. Look out, a Golden Cross is forming! The 50-day SMA is set to cross above the 200-day SMA. These technical indicators still continue to paint a bullish picture for the major in the near term.
The RSI clocking in above the 50 level suggests that buying momentum is strong. If GBP/USD can stay above important support levels, this momentum might reinforce the start of an uptrend. Should the bulls break above 1.3250, attention will surely increase. Analysts expect the pair to climb sharply towards its next target at 1.3300.
Key Levels to Watch
Market participants would do well to watch a few important thresholds that may determine GBP/USD’s next directions. The first resistance level is the 1.3300 where it needs to break the zone for the pair to gather more bullish steam. Acceptance above this resistance would most likely attract even more buying interest and eye the October 2024 high of 1.3390.
If sellers can get through the short-term support zone their tasks become highly formidable. More specifically, if they start to breach the 21-day SMA at 1.2958, then watchfulness is key. After this region, the confluence zone of the 50-day and 200-day SMAs near 1.2810 will be the focus. However, if these support levels break, sentiment in the market could turn pretty quickly. This could pave the way for further drops heading into the 100-day SMA at 1.2652.
“The duo requires a firm base above the 1.3250 key resistance, to resume the bullish trend toward the 1.3300 level,” said Dhwani. Further topside target is in line with the October 2024 high of 1.3390. The nearest support holds firm at the 21-day SMA, currently located at 1.2958. Should that level be broken, we’d be likely to retest the confluence zone of the 50-day and 200-day SMAs near 1.2810.
Inflation Outlook and Its Impact on Monetary Policy
While traders deepened their focus on technical patterns in GBP/USD, they’re looking ahead to critical macroeconomic data that could still shape future currency movements. Inflation is already expected to cool considerably in the UK by March, the analysts said. Collectively, they are predicting a headline rate of 2.6%. This figure is a hair under market expectations of 2.7% and representative of a ticking down from February’s 2.8%.
TD Securities analysts highlight that services will probably overwhelmingly lead this drop. They’re projecting a 4.7% annual growth, lowered from the prior rate of 5.0%. In addition to that, core inflation is projected to fall to 3.3%, a decrease from the 3.5% core inflation reported.
“Our baseline is for inflation to keep falling through March,” wrote TD Securities analysts. While still above the Bank of England’s (BoE) pain threshold, the fall will be cheered as UK policymakers head into their May meeting.
This anticipated reduction in inflation could provide the BoE with greater leeway in its monetary policy decisions. That flexibility will be a major theme of their next scheduled meeting in May. If inflation continues to fall, it will raise speculation of a possible rate decrease. This, in turn, will bias GBP/USD investor sentiment in a meaningful way for the foreseeable future.