GBP/USD Forex Signal: Recovery Rally Has More Room to Run

Crispus Nyaga

This relief rally could be part of a break-and-retest approach, meaning that the pair will likely resume the bearish trend.

Bearish View

  • Set a sell limit at 1.3750 (lower side of descending channel).

  • Add a take-profit at 1.3650 and a stop-loss at 1.3850.

  • Timeline: 2 days.

Bullish View

  • Set a buy-stop at 1.3785 and a take-profit at 1.3850.

  • Add a stop-loss at 1.3700.

The GBP/USD price popped on Monday as the risk-on sentiment spread across the financial market. The pair rose from last week’s low of 1.3600 to a high of 1.3724.

Risk-On Sentiment

The GBP/USD pair tumbled last week as investors reacted to the rising number of COVID-19 cases in key countries like New Zealand, the US, Australia, and China. This decline happened as investors bought the US dollar, which is often viewed as a safe-haven currency.

The situation turned around on Monday as the US Dollar Index tumbled by more than 0.25%. The currency weakened against key currencies like the British pound and Swiss franc. Other risky assets like stocks and commodities jumped, with the Dow Jones jumping by more than 284 points. The S&P 500 and NASDAQ 100 indices rose by more than 1%.

The GBP/USD pair rose as investors reflected on the Flash Manufacturing and Services PMI numbers from the UK and the US. The data showed that the PMIs in the two countries declined slightly in August but they remained substantially above the key level of 50. This is a sign that manufacturers and service providers are doing well in spite of the new COVID wave.

The pair also rose after the strong US existing home sales data. The numbers revealed that the overall existing home sales increased by 2.0% in July to more than 5.99 million. This was a stronger performance from the previous 5.87 million. These numbers showed that the country’s housing market is strong as demand outpaces supply.

There is nothing major scheduled in the economic calendar today. Therefore, focus among traders will remain on the upcoming virtual Jackson Hole summit that will start on Thursday. This is an important summit that brings together many central bank governors.

GBP/USD Technical Forecast

The GBP/USD declined to a low of 1.3600 last week. This was slightly above the lowest level in July at 1.3570. The bearish view turned around on Monday as the pair rose to a high of 1.3725. On the four-hour chart, the pair managed to cross the key 25-day and 50-day exponential moving averages (EMA). The RSI has moved from the oversold level of 19 to 56, meaning that it is not yet overbought.

It also moved to the important resistance at 1.3733, which was the lowest level on July 2. It is also attempting to move above the lower side of the descending channel. Therefore, this relief rally could be part of a break-and-retest approach, meaning that the pair will likely resume the bearish trend.

Crispus Nyaga
Crispus Nyaga is a financial analyst, coach, and trader with more than 8 years in the industry. He has worked for leading companies like ATFX, easyMarkets, and OctaFx. Further, he has published widely in platforms like SeekingAlpha, Investing Cube, Capital.com, and Invezz. In his free time, he likes watching golf and spending time with his wife and child.

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