GBP/USD Forecast: Additional gains likely with daily close above 1.3700

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  • GBP/USD has regained bullish momentum on dollar weakness, Brexit optimism.
  • US Treasury bond yields continue to impact greenback’s valuation.
  • A daily close above 1.3700 could bring in additional buyers.

The GBP/USD pair broke out of its weekly trading channel on Wednesday and extended its advance to a fresh 15-day high near 1.3700 on Thursday amid dollar weakness and Brexit optimism.

Although the initial reaction to the US inflation data, which showed that the annual Core Consumer Price Index stayed unchanged at 4% in September, provided a boost to the greenback, slumping US Treasury bond yields forced the currency to weaken.

Reflecting the broad-based selling pressure surrounding the greenback, the US Dollar Index registered its largest one-day decline in nearly five months as it fell more than 0.5%.

After losing nearly 6% in a two-day span, the benchmark 10-year US T-bond yield is holding above 1.5% on Thursday, helping the dollar stay relatively more resilient.

Nevertheless, the European Union’s proposal to relieve some of the pressure on the movement of goods to Northern Ireland is assessed as a positive step toward a solid solution. European Commission vice-president Maros Sefcovic told Reuters that the EU’s package should not be seen as a “take it or leave it” offer but noted that they wouldn’t present a new proposal if this one was rejected by the UK.

Supported by the Bank of England’s (BoE) hawkish outlook and Brexit headlines, GBP/USD is likely to keep its footing even if the dollar manages to regain its traction.

GBP/USD technical analysis

The 200-period SMA on the four-hour chart aligns as the first resistance at 1.3700. GBP/USD is currently testing this level but the Relative Strength Indicator (RSI) on the same chart rose above 70 for the first time since early September, suggesting that there could be a technical correction before the next leg up.

In case buyers continue to defend this level and the pair ends the day above it, the next interim hurdle could be seen at 1.3720 (upper line of ascending regression channel coming from late September) ahead of 1.3750 (September 23 high).

On the downside, 1.3680 (middle line of the regression channel) is the first support before 1.3640 (lower line of the regression channel) and 1.3600 (psychological level/100-period SMA).