GBPUSD has been on a strong uptrend, as the pair has been trading above a rising trend line forming on its 4-hour forex chart. The pair recently rallied up to the 1.5800 major psychological resistance before showing signs of a pullback.
Applying the Fibonacci retracement tool on the latest swing low and high shows that the 50% Fibonacci level is close to the trend line and coincides with the 1.5400 major psychological support. At the same time, stochastic is already indicating oversold conditions, which means that sellers are about to lose steam and let buyers take control.
In that case, a bounce off the nearer Fibonacci retracement level around the 1.5450 to 1.5500 levels might take place and push GBPUSD back up to the previous highs and beyond. Sustained bullish momentum could lead to a move up to the 1.6000 major psychological resistance.
Event risks for this trade setup today include the release of the UK CPI figures, which might indicate another decline in price levels for April. The headline reading is slated to show a flat reading while the core version of the report might stay unchanged at 1.0%. The BOE has already predicted further weakness in inflation so any downside surprises might just lead to a few losses.
As for the US economy, building permits and housing starts are lined up today, with potential improvements eyed. However, data from the US has been disappointing recently so there could be a chance of the actual figures missing forecasts. In that case, demand for the dollar could weaken and spark a bounce for GBPUSD.
In addition, the short-term EMA is moving above the longer-term EMA on the 4-hour chart, confirming that the uptrend is likely to stay intact. The long-term EMA is in line with the rising trend line, adding to the strength of that support zone.
By Kate Curtis from Trader’s Way