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Abstract: The GBPUSD rebounded from 1.2800 yesterday and closed in a bullish outlook. This bullish reaction can confirm the persistence of the bullish trend. On the bright side, a new high is the target of a bullish trend. However, we still believe the structure of Wave 5 is effective before breaking through the new high.

Fundamentals

The GBPUSD hit a four-day high of 1.2925 on Wednesday, as market participants got rid of the risks associated with the weak economic outlook. The week before that, as inflation in the UK fell more than expected, prompting traders to reduce their bets on the Bank of England's (BOE) further interest rate hike, the GBP lost its support and a key pillar fell sharply, setting the longest decline since the sell-off before Truss became British prime minister last year.

The GBPUSD has fallen by more than 2% in the past six days. The GBPEUR was also poor, which was the worst week since February. These situations highlight that the GBP will face headwinds in the second half of this year after the latest economic data is released that week.

There is no doubt that the BOE's interest rate hike has curbed economic growth. However, the BOE cannot avoid raising interest rates further, because the current inflation is almost four times the required interest rate of 2%. The rate hike at the policy meeting in August will be the 14th consecutive rate hike to put pressure on stubborn inflation. The BOE is expected to raise interest rates by 25 basis points to 5.25%.

The GBPUSD rebounded from 1.2800 yesterday and closed in a bullish outlook. It even seems to be forming a foundation and trying to launch a wave of recovery.

The GBPUSD broke through the connecting bearish trend line with resistance levels of 1.2850 and 50-hour SMA. At present, it faces upward resistance near the 1.2930 range. If there is an obvious upward breakthrough and it stands above this range, the GBPUSD may rise to 1.2960 in a short time.

The next key resistance is around the 1.3000 level, above which GBPUSD could gain bullish momentum and return to the 1.3050 range.

On the downside, the first major support is located near the 50-hour SMA at 1.2850. The next support level is formed around 1.2815, below which the GBPUSD could move lower to 1.2750.

Technical Analysis

The GBPUSD rebounded from 1.2800 yesterday, and this pattern showed a familiar trend on June 30, which helped the GBPUSD to open a sharp upward trend to a high of 1.3142 on April 4, 2022, after falling below the 20-day SMA.

However, will the same rebound play out again? Technical indicators may not be optimistic. The RSI has extended its downtrend to the 50 neutral threshold and the MACD remains below the 0-axis. Therefore, while stochastics suggest oversold, there is no evidence that the bearish correction is complete.

The bulls need the price to rise above 1.2966 and then break above the 1.3000 range, which encompasses two resistance lines and the 61.8% Fibonacci retracement of the 2021-2022 downtrend. A successful break above that boundary could clear the way to the July top at 1.3140. And if it goes higher, the uptrend could reach as high as 1.3300, a level last seen in March 2022. This is also where the tentative uptrend line has been since June.

While a close below the support trend line at 1.2870 could lead the asset toward the 50-day SMA at 1.2670 and the medium-term rising line since March. If bears touch the previous low of 1.2590 again, then fears of a negative trend reversal could push prices further down to 1.2400.

Overall, since the GBPUSD hit the long-term bottom of 1.0355, it has maintained a positive upward trend in the short and medium term, but it remains to be seen whether it will maintain the current bullish trend. After all, the level of 1.3042 in the early supply zone has been tested. At the same time, the structure of the downward Wave 5 is still effective. It is recommended to go short at the highs.

Trading Recommendations

Trading direction: Short

Entry price: 1.2920

Target price: 1.2623

Stop loss: 1.3130

Deadline: 2023-08-08 23:55:00

Support: 1.2863, 1.2800, 1.2750

Resistance: 1.2963, 1.3035, 1.3124