Shows Strong Rally as US Dollar Weakens

Although short-term pullbacks may occur, they are expected to provide buying opportunities. 

• The GBP/USD experienced a significant rally during Thursday’s trading session as inflation in the United States began to cool off.
• This cooling off has led traders to anticipate a potential decrease in aggressiveness from the Federal Reserve, causing the US dollar to weaken.
• Given this scenario, it is likely that the British pound will continue to climb higher.

Although short-term pullbacks may occur, they are expected to provide buying opportunities. The overall outlook suggests that, given enough time, the market will continue to trend upward, attracting value hunters. The 1.30 level remains a crucial focal point, given its significance as a large, round, psychologically important figure, and its recent resistance level. Market memory comes into play here, with the market testing the strength of the prevailing bullish pressure.

It is important to note that the US dollar is likely to be the primary driver of market movements. With that in mind, it is anticipated that the market may continue to climb higher, potentially reaching levels around 1.3250 or even 1.35. As a result, it is only a matter of time before value hunters re-enter the market during pullbacks. Therefore, shorting this currency pair is not of interest. It is evident that the US dollar is currently on the defensive, while the British pound has displayed considerable strength. This dynamic is unlikely to change in the near future, maintaining a bullish outlook for the pair. However, given the current stretched nature of the market, a short-term turnaround would not be surprising.

Selling this currency pair would require a significant trendline break, which is currently far from being a possibility. Therefore, it is not even a consideration at this point. However, I will be monitoring that trendline to make sure nothing has changed from a momentum point of view.

At the end of the day, the British pound demonstrated a strong rally against the US dollar, driven by cooling inflation in the United States. The market is likely to continue its upward trajectory, with short-term pullbacks offering buying opportunities. The 1.30 level remains a critical point of focus, while the US dollar’s weakness is expected to persist, favoring the British pound. Given the bullish sentiment, it is advised to refrain from selling unless a substantial trendline break occurs, which is currently highly unlikely.

Potential signal: I have been bullish as of late, and it looks as if that should continue. On a pullback to the 1.3050 level, I am buying with a stop loss at 1.2950, aiming for the 1.33 level.

Ready to trade our Forex daily forecast? We’ve shortlisted the best regulated forex brokers UK  in the industry for you.