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GBP/USD finds support near 1.30, recovers to 1.3060 despite USD strength

1/25/2019, 2:08:57 PMMarket Analysis
GBP/USD finds support near 1.30, recovers to 1.3060 despite USD strength

After breaking above the 1.30 mark for the first time since mid-November on Wednesday, the GBP/USD pair continued to push higher toward 1.31 on Thursday but lost its momentum as the broad-based USD strength in the second half of the day weighed on the pair. However, the pair found support ahead of 1.30 and retraced almost all of its daily losses. As of writing, GBP/USD was down only 9 pips on the day at 1.3058.

The data from the U.S. today revealed that the business activity in the manufacturing and the service sector expanded at a stronger pace than expected in January. Additionally, weekly jobless claims fell below 200K for the first time in nearly 50 years. Commenting on this data, White House economic advisor Kudlow argued that jobless claims data suggested that the January jobs report may be "up a significant amount." Supported by the data, the US Dollar Index rose to its highest level in three weeks at 96.68 and was last seen up 0.45% on the day at 96.55.

Despite the USD's impressive performance, however, the sharp drop witnessed in the EUR/GBP pair following ECB President Draghi's cautious remarks on the economic outlook helped the British pound show resilience. The EUR/GBP today slumped to its lowest level since April at 0.8650.

Earlier in the day, BoE Governor Carney reiterated that the policy response to a no deal Brexit could be in either direction.  “Better position of household balance sheets, relative to the financial crisis, a reason for confidence that slowdown will not turn into stagnation,” Carney further stated while speaking on the sidelines at the World Economic Forum in Davos.  

Technical outlook via FXStreet Chief Analyst Valeria Bednarik

The pair traded as low as 1.3011 with a bounce from the level being capped by selling interest around 1.3060, now the immediate resistance. The upward momentum eased, but the risk remains skewed to the upside according to the 4 hours chart, as the pair is trading well above a firmly bullish 20 SMA, which keeps widening its distance with the 200 EMA, as technical indicators correct from overbought levels, remaining well into positive ground. Below the mentioned daily low, chances of a downward extension are larger with a probable bearish target for this Friday at 1.2925.

Support levels: 1.3010 1.2970 1.2925

Resistance levels: 1.3030 1.3085 1.3130