GBP/USD Displays a Robust Tone and May Test Year-to-Date Highs at 1.2447/49
GBP/USD continues to demonstrate a positive performance as it recovers back above its 200-day moving average, indicating a strong momentum. Economists at Credit Suisse predict that the pair may test the year-to-date highs of 1.2447/49.
The resistance level at 1.2270’s mid-February high and downtrend from February 2022 needs to be cleared for GBP/USD to have a sustained break that paves the way for a new rally to test the year-to-date highs. However, if the strength of GBP/USD continues to extend upward, resistance is expected at 1.2668 to 1.2783. This resistance range is defined by the May 2020 high, 61.8% retracement of the 2021/2022 decline, and long-term downtrend from May 2021.
Support Must Be Held at 1.2009 for Immediate Risk
While suggesting that support at 1.2009 is held to maintain the immediate risk higher, the economists argue that a downward breakout could lead to a retest of the 200-day moving average, now at 1.1895. Maintaining a strong support level at this point is essential for GBP/USD to move towards year-to-date highs.
Recovery of GBP/USD Above its 200-day Moving Average Indicates Strong Momentum
The GBP/USD’s ability to maintain momentum above its 200-day moving average despite the area’s frequent tests indicates the bullish tone in the currency pair. In technical analysis, the 200-day moving average is considered a vital level for determining the long-term trend. Maintaining an upward trajectory above the 200-day moving average indicates that the trend is favorable for the bulls.
GBP/USD’s Year-to-Date Performance
GBP/USD has portrayed an erratic performance throughout 2021, from a high of 1.4237 in January to a low of 1.1412 in September. A combination of factors have played a role in the pair’s fluctuating performance, including the Brexit deal, the COVID-19 pandemic’s impact on the economy, and the Bank of England’s monetary policies.
The Brexit deal and the transition period expiration resulted in several uncertainties that have affected GBP/USD’s performance. Moreover, the COVID-19 pandemic’s economic impact disrupted several industries, leading to the UK’s unprecedented recession. The Bank of England’s monetary policies have often been seen as a significant driving force behind GBP/USD’s fluctuations. Low interest rates and quantitative easing have been used to stimulate the economy during the pandemic.
However, GBP/USD has displayed a remarkable performance as it recovered losses incurred during the COVID-19 outbreak, achieving a high of 1.4247 in June 2021. Despite the setback, the GBP/USD consolidates its stable performance within the 1.2270 and 1.2668/1.2783 resistance range.
Forecasts for GBP/USD
Analysts predict that GBP/USD’s outlook is favorable, citing the growing economy and an optimistic perspective on Brexit talks. The UK economy has shown signs of resilience since the pandemic’s onset, outpacing its European counterparts in terms of GDP growth. A newly launched COVID-19 vaccination program has also been successful in reducing infection rates and deaths, providing a favorable outlook for economic growth.
Brexit talks have also been constructive as the UK continues to negotiate trade deals and resolve its regime’s concerns. Analysts suggest that a favorable Brexit deal could lead to more foreign investment in the UK, leading to stability in GBP/USD.
However, the threat of a resurging virus leading to more lockdowns combined with a slow economic recovery could hinder GBP/USD’s growth. Any progression in the US dollar could also negatively affect the currency pair, leading to significant volatility.
Conclusion
GBP/USD has a robust tone and may test year-to-date highs of 1.2447/49, provided support at 1.2009 is maintained. Clearing resistance at 1.22 and 1.2668/1.2783 will allow GBP/USD to have sustained upward momentum. The supportive economy and Brexit deal negotiations’ progress serve as positive indicators for GBP/USD’s growth.
