04.01.202214:37 Forex Analysis & Reviews: GBP/USD: Corrective growth continues

The IHS Markit/CIPS UK Manufacturing PMI released today, which measures the business climate and conditions in the UK manufacturing sector, indicated that activity was picking up. This sector forms a significant part of the total UK GDP, and its growth (up to 57.9 in December) is an important positive indicator of the business environment and the general state of the UK economy, and this, in turn, along with high inflation creates conditions when the Bank England may consider raising interest rates again. Economists believe that the pound has the potential to strengthen further amid easing concerns over COVID-19 and the prospect of new interest rate hikes by the Bank of England.

GBP/USD may well break the resistance level of 1.3590 (200-period moving average on the daily chart). If the pair manages to gain a foothold in this zone of the bull market, then the next targets may be the resistance levels 1.3700, 1.3800, and 1.3900. Provided that the Bank of England really decides to raise the interest rate at the meeting on February 3, and the Fed does not at its meeting on January 25 and 26.

Technical Analysis and Trading Recommendations

Having tested an important support level (Fibonacci level 23.6% of the correction to the decline of the GBP/USD pair in the wave that began in July 2014 near the level of 1.3200), GBP/USD rebounded from it and rose by 2.3% to the current level of 1.3505, breaking through important resistance level 1.3430 (50 EMA on the daily chart).

Nevertheless, the current growth in GBP/USD should still be viewed as corrective, and the main scenario is still a long-term decline within the bearish trend.

However, to resume short positions, you should still wait for the price to return to the zone below the support level of 1.3410 (200 EMA on the 4-hour chart), and the breakdown of the support level 1.3440 (200 EMA on the 1-hour chart) will be the first signal for this. A breakdown of the local support level 1.3160 will open the way for a decline towards 1.3000, and 1.2700.

In an alternative scenario, the corrective growth of GBP/USD will continue, and its target may be resistance levels 1.3590 (200 EMA on the daily chart), and 1.3600. Their breakdown may signal the end of the downward trend.

Support levels: 1.3440, 1.3430, 1.3410, 1.3375, 1.3300, 1.3210, 1.3160, 1.3000, 1.2865, 1.2685

Resistance levels: 1.3590, 1.3700, 1.3832, 1.3900, 1.3970, 1.4000

Trading recommendations

Sell Stop 1.3450. Stop-Loss 1.3530. Take-Profit 1.3440, 1.3430, 1.3410, 1.3375, 1.3300, 1.3210, 1.3160, 1.3000, 1.2865, 1.2685

Buy Stop 1.3530. Stop-Loss 1.3450. Take-Profit 1.3590, 1.3700, 1.3832, 1.3900, 1.3970, 1.4000