GBPUSD recorded a stunning rally after it jumped above the 23.6% Fibonacci retracement level of the downleg from 1.4375 to 1.2660, around 1.3066, posting a fresh seven-week high of 1.3169. The buying interest following the rebound on the 1.2660 support level has shifted the bearish outlook to a neutral one. However, the 20-day simple moving average (SMA) created a bullish crossover with the 40-day SMA in the near-term, indicating a continuation of the upside correction move.
The momentum indicators are supportive of the bullish movement, with the RSI approaching the overbought zone and the MACD strengthening its movement above the trigger and zero lines.
If the bulls continue to have the upper hand then the expectation is a touch of the 38.2% Fibonacci level of 1.3315, before hitting the strong resistance level of 1.3370, identified by the high on July 9. Such a break would confirm a forthcoming higher high on the daily chart and send prices towards the 1.3475 barrier, taken from the high on June 7.
On the other side, a clear dip below the 1.3040 key level would bring the pair back and may set the stage for declines until the moving averages’ bullish cross at 1.2945. Further losses could drive cable down until the 1.2780 support, achieved on September 5.
To conclude, having a look at the bigger view, sterling has been developing in a bearish structure against the greenback since April and it seems ready for a significant upside retracement. However, it needs first to surpass the 1.3370 hurdle before switching to a possible bullish bias.