**Looking Back at Previous Analysis** Two days ago, our analysis suggested a short-term bullish trend, aiming for 1.3505. However, it seems momentum might struggle to push beyond that level. Yesterday, GBP reached 1.3507, indicating that the upside risk remains. Still, breaking past 1.3570 isn’t certain. As long as GBP stays above 1.3430—formerly strong support at 1.3380—the upward trend may continue. If we look back to last year, we noticed a similar trend for the Pound Sterling against the US Dollar. In January 2025, we wondered if momentum would be enough to break through key resistance near 1.3570. Our cautious optimism turned out to be correct, as the pair consolidated before eventually moving higher later that year. The current situation feels similar, although the levels have risen since the Bank of England maintained stable rates. Recent data revealed that UK core inflation held at 3.1% in December, unexpectedly surpassing forecasts and increasing chances that interest rate cuts will be postponed. This provides a strong fundamental reason for the Pound’s ongoing strength. For traders dealing in derivatives, this signals a bullish, yet limited perspective for the upcoming weeks. Buying bull call spreads could be a good strategy, potentially profiting from a rise toward the resistance level of 1.4050 while also minimizing risk if momentum slows. This approach reflects the idea that there is upside potential, but a significant breakout isn’t certain yet. **Potential Concerns with US Economic Resilience** On the other hand, the US economy is proving resilient, which might limit the Pound’s progress. Last week, US retail sales came in 0.5% above expectations, reinforcing the Federal Reserve’s “higher-for-longer” interest rate approach. This balancing act is likely to prevent the pair from moving too abruptly in either direction. This suggests that while the upside might be restricted, robust support levels should hold. Traders might consider selling out-of-the-money puts below the important 1.3800 support level. This strategy could generate premium income, based on the belief that the Bank of England will hold firm and prevent a significant decline in the near term. We’ve seen implied volatility for GBP/USD options rise to a three-month high of 8.5% ahead of upcoming central bank meetings. This increase in expected price fluctuations makes selling premium more appealing, but it also indicates that the market anticipates a possible sharp price movement. Historically, times of rising volatility without a clear directional shift, like early 2025, are favorable for range-bound option strategies. Create your live VT Markets account and start trading now.

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