GBP/USD Nudges Higher Amidst Fed-BoE Divergence

Chart Analysis

Since August 8, GBP/USD has been on an upward trajectory. The pair reached a low of 1.26648 and broke the 1.3250 resistance level on August 27 before dipping towards 1.3000.

The pair regained bullish momentum after breaking through a descending trend line and hitting the key 1.3300 psychological level. The daily chart shows a strong bullish trend, with prices above the 50-day EMA and 100-day EMA.

However, the RSI is nearing the 70-level suggesting overbought conditions and is providing evidence of the fact that cable buyers have failed to push the price above the 1.3300 handle. As a result, the price is hovering near the 1.3300 level for now.

Key Resistance Levels

If the bulls take over, there can be three key resistance levels. The first is the 1.3345 level. If the pair manages to break this level, the next resistance level will be at 1.34. If the bullish momentum continues, GBP/USD can reach the 1.3435 region, the level it saw back in March 2022.

Key Support Levels

If the buyers don’t take the price much further, the previous resistance level of 1.3250 is an immediate support level. If the price declines further, another falling trend line resistance level at 1.3150 will come into play. If sellers push the price further downwards, the price can test the strong support around 1.3000.

Fundamentals

Amidst a surprise 50-bps cut from the Fed on Wednesday. Besides this, the BoE maintained a no-cut policy on Thursday. The Fed-BoE divergence is keeping the bullish momentum intact.

One factor supporting the strength of the GBP is the idea that the BoE is treading more cautiously than the Fed and is providing little direction.

However, the BoE may not deviate much further from the Feds. The Bank acknowledges that volatile categories are mostly to blame for the recent stickiness in service sector inflation, which has minimal effect on monetary policy actions. When you take that out, the picture becomes better for the cut.

Amidst the cut and the US November election, the market may not chase GBP/USD much further.

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Conclusion

In conclusion, the technical side paints a slightly bullish perspective for the pair supported by a descending trend line breakthrough and price reaching key resistance levels. However, traders have to keep an eye on key support levels, as buyers could look for dip-buying.

The Fed-BoE divergence can be positive news for GBP, however, after November, the BoE may increase rate cuts, as it’ll have more confidence in inflation data.

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