GBP/USD Technical Analysis: Strong Breakout of Channel

For seven trading sessions in a row, the GBP/USD currency pair is moving within the range of an upward correction channel.

It then succeeded in moving towards the resistance level 1.3940 at the time of writing, its highest level in a month. The factors for its gains were alleviating fears of the rapid spread of the Corona Delta variable at a time when Britain is completely abandoning the restrictions of the pandemic. This is in addition to the weakness of the US dollar, amid the US Federal Reserve’s abandonment of setting a date for tightening its monetary policy after yesterday’s meeting. Despite the bank's assertion that the economy is recovering and that it is on the right path, the markets and investors wanted to confirm a specific date for tightening its policy.

Analysts still see sterling having further gains as investors buy into the economic recovery story which means the UK is poised to grow faster than its Eurozone rivals in 2021. Investors say the development could allow the BoE to raise interest rates before the Reserve Bank. The US Federal Reserve and the European Central Bank, which creates a contrast in the central bank's policy that favors an appreciation of the pound.

In this regard, Joe Manimbo, chief market analyst at Western Union, says: “Constructive news about the epidemic, if it continues, may allow the Bank of England, which meets next week, to drop the positive hawkish hints about sterling about the monetary policy outlook.”

The British pound is currently the best performing major currency this week at the time of writing, with notable gains against the US dollar in particular. The massive spread of vaccines, declining Covid-19 cases and deregulation mean the UK economy is expected to grow strongly through the end of the year, prompting the International Monetary Fund to raise its forecast for the economy in its latest quarterly assessment. Accordingly, the International Monetary Fund raised the economic growth forecast for the United Kingdom to 7.0%, which means that the country will join the United States in achieving the fastest growth of the Group of Seven major rich countries.

On Wednesday, the United Kingdom reported 27,734 new cases of Covid-19, down from 44,104 the previous week. After peaking at less than 500 new infections per 100,000 population on July 22, the UK sees new infections continue to fall with an average of 7 days of infections now below 400 per 100,000.

According to the technical analysis of the pair: The success of the strong recovery attempt for the GBP/USD currency pair depends on breaching the 1.4000 psychological resistance, the most important for the bulls to move towards stronger upward levels. On the daily chart, the pair is at the beginning of breaking the descending channel, which recently pushed it to the support level 1.3571, the lowest in five months. On the other hand, the bears may return to control the performance again if the currency pair moves lower to the support levels 1.3860 and 1.3755.

The performance of the sterling-dollar pair will remain dependent on the numbers of injuries, especially from Britain, with the Corona Delta variable and the future of abandoning all restrictions of the pandemic and the economic improvement after the opening.

As for the economic calendar data today: From Britain, net lending to individuals and mortgage approvals will be announced. From the United States of America, the most important reading of the growth of the US economy will be announced, along with the number of weekly jobless claims and the number of pending home sales.

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Mahmoud Abdallah
Mahmoud has been working fulltime in the Foreign Exchange markets for 12 years. Offers his analysis, articles and recommendations at the most renewed Arabic websites specialized in the global financial markets, and his experience gained a lot of interest among Arab traders. Works on providing technical analysis, market news, free signals and more with follow up for at least 12 hours a day, and aims to simplify forex trading and the concept of trading for his audience.