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Technical analysis: GBP/USD

Sterling was the top performing major currency in the past week, with the majority of the strength coming on Friday, when it rallied almost 200 pips as the US dollar weakened across the board, following the release of the inflationary reading for February which 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 Bank of England 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 given views that could strengthen sterling, with the statement of Ben Broadbent claiming that an improvement in the financial system, and credit specifically, could justify withdrawing the stimulus.

GBP/USD 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 also remains bullish on the four-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, sterling could log further gains up to major resistance by 1.5917, the 50% Fibonacci level from the August high to the January low. In the alternative scenario, a downside movement below 1.578 could open the door for major support at 1.5656.

Daily chart
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Four-hour chart
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Dafni Serdari
Market Analyst

Published: 19 March 2012

You should under no circumstances consider the information and comments provided as an offer or solicitation to invest. This is not investment advice. The information provided is believed to be accurate at the date the information is produced.

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