GBP/USD eased on Thursday after reaching a more than two-month high near 1.3555-1.3560 a day earlier, and it traded around 1.3525 in early European dealings. The US Dollar found some support as markets weighed softer US CPI and PPI readings against elevated crude oil prices that have revived energy-led inflation concerns and expectations for further Federal Reserve tightening, while escalating US-Iran tensions also underpinned safe-haven demand.
Sterling drew support from easing UK political uncertainty and improved optimism around the fiscal outlook, with the incoming Prime Minister, Andy Burnham, pledging fiscal discipline and expected to appoint a fiscally conservative finance minister. Technically, the pair has broken above the 61.8% Fibonacci retracement of the May-June decline and reclaimed 1.3500, while the MACD histogram remains positive with the line above zero; however, the RSI at 72.2 points to overbought conditions. Resistance levels are flagged at the 78.6% retracement of 1.3547 and then 1.3657, while support sits at 1.3461 and 1.3401, with deeper pullbacks eyed near the 200-period SMA and the 1.3345-1.3340 area tied to the 38.2% level.
Outlook for Derivative Traders
We advise derivative traders to look for dip-buying opportunities on the GBP/USD pair as it retreats from its recent two-month high near 1.3560. Although the spot price has eased to around 1.3525, the broader market structure remains highly encouraging for buyers. We believe waiting for a pullback below the 1.3500 psychological mark will offer the safest risk-to-reward ratio for long positions in the coming weeks.
This cautious approach is justified by recent US inflation metrics and rising geopolitical tensions in the Middle East, which have revived safe-haven demand for the US Dollar. Concurrently, global energy markets are feeling the pressure as crude oil prices remain elevated, renewing fears of energy-driven inflation. We expect these factors to limit immediate GBP/USD gains, creating the perfect window for traders to buy the dips using call options or long futures.
Domestic Support and Technical Perspective
Meanwhile, the British Pound is enjoying strong domestic support due to a stabilizing political outlook and expectations of strict fiscal discipline under incoming Prime Minister Andy Burnham. Historically, sterling has rallied when governments commit to strict spending targets, much like the market stabilization seen during past UK leadership transitions. This domestic confidence should help prevent any major downward spiral for the currency.
Technically, we observe that the Relative Strength Index (RSI) is sitting at 72.2, confirming that the pair is temporarily overbought and due for a brief breather. However, the Moving Average Convergence Divergence (MACD) remains firmly in positive territory, signaling that the broader bullish trend is still intact. We recommend placing buy orders near the key Fibonacci support levels of 1.3461 and 1.3401 to capture the next wave upward.
