Technical Analysis of GBP/USD
The sterling was the top major performing currency in the past week, with the majority of the strength coming on Friday, when it rallied almost 200 pips up on the back of a US Dollar that weakened across the board after the release of the inflationary reading for February opened the door for more speculation on QE3 from the Fed. The key event of the week for the British pound is the release of the BoE minutes on Thursday. The MPC held rates at 0.50% as expected and voted to maintain the asset purchase program at £325 billion, but in the meantime a few policy makers have been out with views that could strengthen the sterling, with the statement of Ben Broadbent claiming that an improvement in the financial system and credit specifically could justify withdrawing stimulus.
The sterling saw some profit taking in early trading and it is now hovering around the 1.5836 level. The pair had been trading in a downward channel since the beginning of February that was broken on Friday with the bullish alignment of the 20 EMA over the 50 EMA on the daily chart supporting long positions further. The bias remains bullish also on the 4 hour chart with the price holding firmly above the 80 SMA following a bullish crossover of the simple moving averages and a strong RSI. With the US Dollar index declining further, the sterling could log further gains up to major resistance by 1.5917, the 50% Fibonacci level from August high to January low. In the alternative scenario, a downside movement below 1.578 could open the door for major support at 1.5656.
4 Hour chart
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