The GBP/USD pair has surged, breaking through several resistance levels. It surpassed the 50% midpoint of the decline from July 1 at 1.3463, as well as the 100-hour moving average at 1.3468, and reached the 200-hour moving average at 1.3505. This moving average is now a key support level. If the price dips below it, the bullish trend may be at risk. The pair is currently close to the 61.8% retracement of the July 1 decline at 1.3539, with attempts showing strength on both sides of this level. Additional resistance lies between 1.3576 and 1.3592, marked by previous price highs from late July and mid-August where sellers stepped in.

Market Momentum

If the price breaks above this resistance, it could indicate a shift toward upward momentum. However, if it falls below the 200-hour moving average, it may suggest a pullback from the recent breakout. Recently, a brief dip below the 100-day moving average hinted at a temporary bearish trend. The current rebound suggests a weaker dollar, and staying above recent lows strengthens the bullish outlook, making this a crucial technical support area. With GBP/USD moving higher, the short-term outlook is now positively skewed for the upcoming weeks. We consider the 200-hour moving average at 1.3505 as the new support level. Any dip toward this could present a buying opportunity for short-term trades. Confirming a hold above this point would reinforce the strength of the recent breakout. This movement is backed by recent economic data showing differences between the UK and the US. In July, the US CPI came in lower than expected at 2.8%, which sparked speculation that the Federal Reserve’s tightening phase might be over following the Chair’s soft commentary. In contrast, inflation in the UK remains above 4.5%, leading the Bank of England to maintain a firm approach.

Economic Divergence

The differing policies are driving the pound upward against the dollar, similar to trends seen in 2021 when central banks were on varied paths. This scenario makes bullish strategies, such as buying call options or selling out-of-the-money put spreads, more appealing. Traders should closely monitor the crucial resistance level between 1.3576 and 1.3592. If the price sustains a break above 1.3592, it would signal a more significant upward trend, making long-term call options a good strategy for capturing further gains. We have seen increased call buying since the breakout, with open interest in September and October contracts climbing, indicating market positioning for more upward movement into autumn. On the other hand, risk management is essential. The 1.3505 level serves as our boundary. If this support fails, it would threaten the bullish outlook and suggest the recent surge was not sustainable. In that case, purchasing protective puts or reversing bullish positions would be wise to limit potential losses. Create your live VT Markets account and start trading now.

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