GBPUSD Forecast: Pound needs to clear 1.2660

– GBPUSD has lost its traction but managed to hold above key support level.

– The pair needs to clear 1.2660 to attract buyers.

– The dollar’s market valuation should continue to drive the pair’s action.

GBP/USD has lost its traction during the Asian trading hours but managed to hold above the 1.2600 level. The pair needs to flip 1.2660 into support in order to attract buyers and extend its bullish rally.

With US bond markets returning to action following the three-day weekend, the benchmark 10-year US Treasury bond yield pushed higher earlier in the day, helping the dollar gather strength against its rivals. The US Dollar Index was last seen rising 0.3% on the day at 101.65.

Additionally, hawkish Fed commentary provided an additional boost to the dollar despite the thin trading conditions. Fed Board of Governors member Christopher Waller argued that the Fed’s policy rate should be above neutral by the end of the year to reduce demand.

In the second half of the day, the Conference Board’s Consumer Confidence Index for May and the Housing Price Index data for March will be featured in the US economic docket. In case investors are reminded of the negative impact of inflation on consumer confidence, Wall Street’s main indexes could come under bearish pressure and make it difficult for GBP/USD to gather bullish momentum.

It’s also worth noting that month-end flows and profit-taking on the last trading day of May could cause irregular movements in the pair toward the London fix.

GBPUSD Technical Analysis

The Relative Strength Index (RSI) indicator on the four-hour chart holds above 50 early Tuesday. Moreover, the pair continues to trade above the 200-SMA, suggesting that sellers remain on the sidelines for the time being. However, GBP/USD stays slightly below the ascending trend line coming from mid-May, pointing to a loss of bullish momentum.

In case the pair breaks below 1.2600 (psychological level, static level), the next immediate support aligns at 1.2570 (200-period SMA, 50-period SMA). If that latter support fails, this could be seen as a significant bearish development and open the door for additional losses toward 1.2540 (former resistance, static level).

On the upside, the pair needs to settle above 1.2630 (ascending trend line) and clear 1.2660 (static level) to test 1.2700 (static level, psychological level).

Source: FXStreet – Eren Sengezer

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