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GBP/USD Rate Rebound Undermined by Bearish Trend in RSI

British Pound Talking Points

GBP/USDattempts to retrace the decline from the start of the month, but the Relative Strength Index (RSI) undermines the recent rebound in the exchange rate as the indicator continues to track the bearish formation carried over from December.

Technical Forecast for British Pound: Bearish

GBP/USD has reversed course ahead of the November low (1.2769), with the dip below the December low (1.2896) short lived as the British Pound outperformed against all of its major counterparts during the second full week of February.

In turn, GBP/USD may continue to retrace the decline from the monthly high (1.3183) and the exchange rate may trade within a more defined range over the near-term on the back of British Pound strength. However, the correction from the 2019 low (1.1958) may continue to unravel as the bullish momentum from late last year abates.

The Relative Strength Index (RSI) casts a bearish outlook for GBP/USD as the oscillator extends the downward trend from December, and the exchange rate may struggle to retain the rebound from the monthly low (1.2872) as the indicator appears to be turning around ahead of trendline resistance.

As a result, the recent advance in GBP/USD may fail to produce a run at the monthly high (1.3183), and Pound Dollar may face a more bearish fate over the coming days as the exchange rate fails to preserve the range bound price action from December.

GBP/USD Daily Chart

GBPUSD Chart

Source: Trading View

The technical outlook for GBP/USD has become less eventful compared to the volatility seen at the end of 2019, and the exchange rate may trade within a more defined range as the decline from earlier this month fails to produce a run at the November low (1.2769).

In turn, a move above 1.3090 (38.2% retracement) may spur a move towards the monthly high (1.3184), with the next area of interest coming in around 1.3310 (100% expansion) to 1.3370 (78.6% expansion).

However, the Relative Strength Index (RSI) undermines the recent rebound in GBP/USD as the oscillator continues to track the bearish formation from late last year.

With that said, lack of momentum to break/close above the 1.3090 (38.2% retracement) region may push GBP/USD back towards the Fibonacci overlap around 1.2890 (23.6% expansion) to 1.2950 (23.6% expansion), and failure to preserve the range bounce price action from December may bring the November low (1.2769) back on the radar as long as the RSI appears to be turning around ahead of trendline resistance.

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong