GBP/USD rallied yesterday, breaking above Monday's peak of 1.3135. The pair continues to trade above the prior medium-term downside resistance line drawn from the peak of the 10th of May, as well as above the short-term upside line taken from the low of the 15th of August. In our view, these technical signs suggest that Cable may be poised to continue trading higher for a while more.
If the bulls manage to take charge again soon, then we may see them driving the pair up for a test near the peak of the 26th of September, at around 1.3215. A decisive move above that hurdle could pave the way for the 1.3280 zone, slightly below the high of the 20th of September. That zone also provided good resistance from the 10th until the 17th of July.
That said, before the next positive leg, we see a decent chance for the pair to correct a bit lower, perhaps back below 1.3135. The bulls may decide to re-enter the action from near 1.3100, but even if this is not the case, we would still consider the near-term outlook to be somewhat positive as there would still be a possibility for the rate to rebound from near the 1.3030 support or the upside line drawn from the low of the 15th of August.
Our view for a possible setback is derived by our short-term momentum indicators. The RSI has topped fractionally below its 70 line, while the MACD, although above both its zero and trigger lines, shows signs of slowing down and that it could start topping as well.
We would like to see a clear dip below the psychological zone of 1.3000 before we start examining whether the near-term picture has turned negative. Such a move could confirm the break of the short-term upside line and may initially aim for the 1.2940 support. Another break below 1.2940 could pave the way for the 1.2900 mark.
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