GBP/USD Challenges Major Confluence Resistance, Bearish Reversal in Play

GBP/USD TECHNICAL OUTLOOK:

• GBP/USD has been rising steadily since early March after bouncing off technical support
• Despite cable’s positive bias, a pullback could be around the corner, with prices challenging a major confluence resistance area
• In the event of a bearish reversal, initial support appears at 1.2270

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GBP/USD was subdued on Friday heading into the weekend, but has been rising steadily since early March after bouncing off support located just a touch above the psychological 1.1800 level. The British pound’s gains have been bolstered by widespread weakness in the U.S. dollar, though there have also been some idiosyncratic catalysts at play in recent weeks.

While sterling’s near-term bias appears to be positive, it is vital to note an important fact: GBP/USD is steadily approaching a major confluence resistance zone near 1.2450. This barrier, created by the 61.80% Fibonacci retracement of the 2022 slump, has stopped bulls in their tracks on various occasions in December 2022 and January 2023, triggering a pullback after each test during this period.

Technical analysis is based on the idea that price movements exhibit identifiable patterns and history repeats itself more often than expected in financial markets. If these assumptions hold true this time, cable’s recent rebound may be on its last legs before running out of gas. This means that the British pound could be on the verge of a bearish reversal against the U.S. dollar in short order.

To position for a potential pullback, traders may have an attractive tactical set-up in front of them, with GBP/USD challenging a key ceiling and facing possible rejection. Should the bearish scenario play out, sellers could regain control of the market near the 1.2450 region, paving the way for a move toward 1.2270. On further weakness, the focus shifts to the 50-day simple moving average.

On the flip side, if confluence resistance at 1.2450 gets taken out on higher volume and on a daily closing price basis, the bearish case would be invalidated. Having said that, a topside breakout may lure new buyers and bolster upside momentum, creating the right conditions for a climb towards the May highs at 1.2680 and 1.3000 thereafter.

Want to learn more about the British Pound’s technical and fundamental outlook? Click the link below to download DailyFX’s second-quarter outlook

GBP/USD TECHNICAL CHART

GBP/USD Technical Chart Prepared Using TradingView