Further upside seen for GBP/USD

AFTER creating a record low since 1985 in March 2020, GBP/USD staged a reversal and ascended in a rising wedge that lasted till May 2021. Since then, the currency pair has retraced and formed a descending channel which the price has broken out of at the time of analysis on Jan 14, 2022. In this article, we will shed light on some observations that point to a further advance for GBP/USD on the weekly chart. A rebound from the 38.2 per cent Fibonacci level at 1.3561 was a healthy sign that suggests the downtrend from June to December 2021 was a corrective wave in a broader uptrend. Fibonacci retracements levels are horizontal lines that indicate possible support and resistance levels where price may potentially reverse in direction.

On the weekly GBP/USD chart, we draw the Fibonacci retracement from the swing low on Mar 20, 2020 to the swing high on Jun 1, 2021. Despite breaching below the 23.6 per cent Fibonacci level on the retracement, the currency pair was met with solid support at 38.2 per cent Fibonacci level and has since risen for the fourth consecutive week now. The 38.2 per cent Fibonacci level is also a resistance-turned-support level, which the successful retest meant that the pair might see further upside.

Following the rebound, the bullish momentum was also validated by a breakout from the falling channel. The falling channel is identified by connecting a series of lower highs and lower lows from June 2021 till present. On Jan 11, 2021, GBP/USD broke above the upper dynamic resistance level that stretched back to Jun 1, 2020. Such a breakout is often a bullish sign that would set a technical target at start of the falling channel at 1.4248.