GBP/USD Enters Overbought Zone – Why 1.2500 Could Drive Sell-off

May 20, 2022

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GBP/USD Enters Overbought: GBP/USD has gained bullish momentum, rising above 1.2450 for the first time in more than ten days. If the pair can hold above 1.2430, sellers are likely to stay on the sidelines and allow it to continue to rise.

Earlier in the day, data from the United Kingdom revealed that the unemployment rate in the first three months of this year fell to its lowest level since 1974, at 3.7 percent. Further details of the publication revealed that Average Earnings, Including bonuses, increased by 7% year on year in March, far exceeding the market expectation of 5.4 percent.

The fact that wage inflation in the UK rose faster than expected could be interpreted as a development that could force the Bank of England (BOE) to maintain its tightening policy.

GBP/USD Enters Overbought

Meanwhile, risk flows dominated financial markets on Tuesday, despite reports that no new coronavirus cases had been reported across all districts of Shanghai. The FTSE 100 Index in the United Kingdom is up 0.8 percent, and US stock index futures are up between 1% and 1.8%, indicating that the dollar is likely to remain under pressure in the afternoon. At the time of writing, the US Dollar Index was down 0.5 percent on the day, standing at 103.68.

Later in the session, the US Census Bureau will release April’s Retail Sales data. FOMC Chairman Jerome Powell is also scheduled to speak at a Wall Street Journal event. If Powell reminds investors of the deteriorating inflation outlook, the risk rally may lose steam, limiting the GBP/USD upside.

GBP/USD Technical Outlook

GBP/USD has gained bullish momentum, rising above 1.2450 for the first time in more than ten days. If the pair can hold above 1.2430, sellers are likely to stay on the sidelines and allow it to continue to rise.

The GBPUSD pair rallied strongly upwards to surpass our anticipated target of 1.2423, paving the way for more bullish corrections to 1.2590 areas as the next main station, with the continuation of the bullish wave requiring holding above 1.2420. Today’s trading range is expected to be between 1.2400 support and 1.2520 resistance.