GBPUSD has stalled its recent rally that took the pair to a high of 1.3618 yesterday. This is the highest level since June 2016. After reaching this level, the market became overextended as is indicated in the momentum oscillators. RSI is overbought above 70 and the stochastic is above 80.
The underlying market structure is bullish – it can be seen that the MACD is bullish and still rising and there is limited downside at this stage. GBPUSD is making a corrective move lower following the strong surge in the past few sessions.
Any further weakness in the market below Friday’s low of 1.3381 would target the key level at 1.3200. Failure at this support would signal more near-term downside especially if there is a move below last week’s low of 1.3149. From here the focus turns to the next key level at 1.3000. A drop back below this psychological level would start to weaken the bullish phase and see the start of a stronger move down towards the August low of 1.2773.
The medium-term outlook should stay bullish if support at 1.2773 holds. The crossover of the 50-day above the 200-day moving average in mid-May gave a bullish signal. In the near term, the bias may turn neutral since resistance at 1.3616 is expected to be strong and likely to keep the market capped below. Clearing the 1.3616 peak would see a resumption of the bullish trend.