GBP/USD surged yesterday, breaking above the downside resistance line drawn from the peak of the 25th of January. Nevertheless, the rate hit resistance fractionally below the psychological zone of 1.4000 and then it retreated somewhat. Bearing in mind that the pair continues to trade above the aforementioned prior downside resistance line, and also above a new upside support line taken from the low of the 1st of March, we believe that the short-term picture may have turned somewhat positive.
That said, we would like to see a decisive break above the key 1.4000 barrier before we get confident on more upside extensions. Such a break is possible to set the stage for our next resistance barrier, at around 1.4070, defined by the high of the 26th of February.
Turning attention to our short-term oscillators, we see that the RSI has topped near its 70 line. It is now pointing down. The MACD, although above both its zero and trigger lines, shows signs of flattening. These momentum signs make us cautious that a further correction may be on the cards before the bulls decide to take charge again.
Nevertheless, as long as such a retreat remains limited above the prior downside resistance line taken from the peak of the 25th of January, we would still consider the near-term outlook to be somewhat positive. We would like to see a decisive break below the new upside support line and the 1.3875 support before we abandon the bullish case. Something like that could initially aim for the 1.3840 barrier, the break of which may open the way towards our next support of 1.3790.
Article written by Charalambos Pissouros, Senior Market Analyst at JFD Brokers