- GBP/USD witnessed an aggressive short-covering move on Monday amid a broad-based USD weakness.
- The set-up favours bearish traders, warranting some caution before positioning for any further gains.
The GBP/USD pair refreshed daily tops heading into the North American session, with bulls looking to build on the momentum further beyond the 1.3700 mark. The mentioned handle coincides with a confluence hurdle, comprising of 100-hour SMA and the 23.6% Fibonacci level of the 1.3984-1.3602 recent leg down. A sustained move beyond will suggest that the pair has formed a temporary base near the 1.3600 mark and prompt some technical buying.
Investors pushed back the likely timing for the Fed’s tapering plan amid worries about the economic fallout from the fast-spreading Delta variant of the coronavirus. This, along with the risk-on impulse, weighed on the safe-haven US dollar and provided a goodish lift to the GBP/USD pair. Meanwhile, RSI on the 1-hour chart is already flashing overbought conditions. Moreover, oscillators on the 4-hour chart – though have recovered from the negative zone – are yet to confirm a bullish bias. Adding to this, technical indicators on the daily chart are holding deep in the bearish territory.
This comes on the back of last week’s sustained weakness below the 1.3725 horizontal support, which validated a bearish double-top breakdown on the daily chart. The technical set-up still seems tilted in favour of bearish traders, warranting some caution before positioning for any further gains. Hence, any subsequent move up is more likely to confront stiff resistance near the 1.3725 support breakpoint, which now coincides with the 38.2% Fibo. level. That said, some follow-through buying might trigger a fresh bout of the short-covering and push the back towards the 1.3800 mark.
On the flip side, any meaningful pullback now seems to find decent support near the 1.3650 level, below which the GBP/USD pair might aim back to challenge the 1.3600 mark. A convincing break below will be seen as a fresh trigger for bearish traders and prompt aggressive technical selling. The pair might then turn vulnerable to weaken further below July monthly swing lows support, around the 1.3570 region. The downward trajectory could further get extended and drag the pair towards the next relevant support near the 1.3500 psychological mark.