GBPUSD Resistance Turned Support (Feb 9, 2015)

Price is now pulling back to the broken resistance area, which lines up with the 38.2% Fibonacci retracement level based on the swing low and high on the 1-hour time frame.

Stochastic is pointing up, indicating that the 1.5200 mark might hold as support moving forward. Price could climb back to its previous highs at 1.5350 or perhaps create new ones all the way up to the 1.5500 major psychological level.

In addition, a bullish divergence has been playing out since stochastic made lower lows while price made higher lows. This adds support to the likelihood that GBPUSD could keep heading higher.

On the other hand, if the support area gives way, price could head back to its previous lows around the 1.5000 major psychological level. The 50% and 61.8% Fib levels might still hold as support though in case volatility picks up.

There are no event risks lined up from both the UK and US economies today, indicating that the current trends might persist. Bear in mind that the US just released a stronger than expected NFP report last Friday, suggesting that the dollar could stay strongly supported.

However, if this means a pickup in risk appetite, the British pound could still end up outpacing the lower-yielding dollar. In their latest rate statement, the BOE hasn’t indicated a shift to a more dovish tone despite the downturn in inflation. This means that the UK central bank is also slightly hawkish just like the Fed.

Later on in the week, the UK manufacturing production report is due and might show a mere 0.3% uptick. BOE Governor Carney is also scheduled to submit an Inflation Report and possibly provide his outlook for the economy, which might be key in dictating pound trends in the longer run.

By Kate Curtis from Trader's Way