GBP/USD Analysis of Costs: Holding near the 23.6% Fibonacci retracement line in the mid-1.2700s

On Friday, there is no clear trend in the GBP/USD exchange rate, and the pair instead trades in a narrow range.

Minor USD weakness is helpful, but major is still restrained by recession worries.
Furthermore, aggressive traders should proceed with caution before the release of UK data due to the mixed technical situation.

On Friday, the British pound and the United States dollar struggle to make headway, trading in a tight range below a weekly high at the 1.2785 area that was reached the day before. Spot prices are trading in the mid-1.2700s, barely changed from the previous trading day. This level coincides with the 23.6% Fibonacci retracement level of the recent decline from a 15-month top reached in July.

The US Dollar (USD) is helped by the GBP/USD pair as US Treasury bond yields fall, pulling the USD away from its highest level in over two months. In addition to this, the British Pound (GBP) is supported by increased bets for more interest rate hikes by the Bank of England (BoE). However, rising consensus that the Federal Reserve (Fed) will keep rates higher for longer and looming recession concerns assist cap the downside for the safe-haven dollar and cap any additional gains for the pair.

The technical analysis of the GBP/USD 4-hour chart shows that the pair has been unable to gain traction above the 100-period Simple Moving Average (SMA) and so has not been able to break out to new highs. In addition, the daily chart’s oscillators have not yet confirmed a bullish bias, despite having emerged from bearish zone. As a result, it’s prudent to proceed with care before committing to a continuation of the recent small recovery move from the 100-day SMA support, around the 1.2615 region, or the lowest level since June 30 reached earlier this week.

However, the overnight swing high at 1.2765 is the most formidable barrier to a continuation of the upward trend, followed by the 1.2800 level and the convergence at 1.2820. The latter is comprised of the 200-period SMA on the 4-hour chart and the 38.2% Fibo. level, both of which must be forcefully broken in order to pave the way for a substantial upwards move. The mid-1.2800s represent a potential barrier for the GBP/USD pair to break through before continuing upward towards the 50% Fibo. level, around the 1.2875-1.2880 area, and eventually the 1.2900 round number.

Spot prices might fall back to challenge the 100-day SMA, which is presently around the 1.2625 zone, if they fall below the overnight swing low, which is currently around the 1.2700 level. If the 1.2500 psychological barrier is breached, bearish traders will get a fresh trigger, and the 1.2530-1.2525 horizontal zone will provide some intermediate support. Spot prices may fall to the 1.2400 round number as the corrective slump extends into the 1.2440-1.2435 support.

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