GBP/USD is currently positioned between 1.3830 and 1.3850, closely aligning with the 1.3869 high reached in September 2021. This movement marks a return to price levels observed in August 2021, following a notable increase of over 300 pips from the mid-1.35s. The pair is confined within a range of 1.3750 to 1.3850, as buyers consistently protect the 1.3750 to 1.3770 area while challenging resistance at 1.3850 to 1.3869. The area in question serves as a critical point for a possible double top formation, with an initial target for a clear extension set at 1.3925, followed by the 1.4000 level. On the daily chart, GBP/USD is decisively positioned above the ascending 9-day EMA close to 1.3667 and the 50-day EMA situated around 1.3461. The fast average is positioned above the slow average, with both exhibiting an upward slope, indicating a bullish short-term trend. The price is currently navigating within a rising wedge formation, with the upper boundary positioned near 1.3910 and the lower line situated around 1.3610. The 14-day RSI is positioned near 75, indicating a state of overbought conditions, suggesting that momentum may be stretched, despite the trend structure continuing to appear favorable. The dollar leg of GBP/USD presents a distinctly unfavorable outlook. The US Dollar Index is currently positioned around 96.00, reflecting multi-year lows, following a two-week decline that persisted despite the Federal Reserve maintaining the funds rate at 3.50%–3.75% and reiterating that inflation continues to exceed target levels. The challenge facing the USD lies not in the policy rate itself, but rather in the trust placed in the overarching policy framework. Political interference risk regarding Fed independence under the Trump administration and an unpredictable fiscal-trade mix are being discounted by the markets, leading to a structural “sell America” stance. The data clearly indicates a decline in USD performance: down 0.26% against GBP, 0.34% against EUR, 0.27% versus CAD, 0.83% versus AUD, 0.59% versus NZD, and 0.50% versus CHF for the day. Despite jobless claims hovering around 209K and the absence of a clear macroeconomic downturn, investors are choosing to reduce their dollar exposure instead of viewing it as a safe haven.
The GBP side is supported by positioning and options flows instead of speculation. Three-month risk reversals in the pound have reached their least negative level since last May, indicating that traders are willing to pay relatively more for GBP/USD upside compared to downside. Spot is currently positioned between 1.3834 and 1.3869, marking its peak against USD since 2021, following its successful recovery and maintenance above 1.3800. The 1.3750 region, which previously served as resistance, now functions as a demand band where dips are actively purchased. The observed behavior, along with the shift in risk-reversal, indicates that both leveraged traders and institutional investors are viewing pullbacks as chances to accumulate GBP rather than to capitalize on its strength. The upcoming significant macro catalyst for the GBP is the Bank of England. With GBP/USD approaching four-year highs and UK data remaining stable, the Bank of England must avoid conveying a message that appears overly dovish. The persistence of inflation and wage dynamics suggests that a swift easing trajectory would be at odds with the current domestic environment. Simultaneously, the Federal Reserve appears to be in a tight spot: outwardly hawkish, yet limited by political dynamics and the administration’s inclination towards a weaker dollar. The current relative setup indicates that the rate-differential narrative is not adversely affecting the pound at this time. Provided that the BoE refrains from indicating a strong shift towards easing and Washington is accepting of a softer USD, the underlying trend supports an upward movement for GBP/USD.
GBP/USD is currently navigating two distinct narratives: continuation and exhaustion. The ongoing narrative is characterized by ascending peaks and troughs, the increasing 9-day and 50-day EMAs, and the upward wedge formation. The risk of exhaustion is focused within the range of 1.3850 to 1.3869, as well as at the 75 RSI level. On the topside, the key layers are 1.3850–1.3860 as immediate intraday resistance, 1.3869 as the September 2021 high, 1.3852 / 1.3898 / 1.3950 as tactical short-interest bands monitored by intraday desks, 1.3900 as a round-number magnet, 1.3910 as the wedge ceiling, 1.3925 as an objective from the 1.3750–1.3850 range extension, then 1.4000 and, further out, 1.4248 from April 2018. The 1.3850–1.3869 zone holds significant importance, as a definitive failure in this range, coupled with a drop below 1.3747, would finalize a bearish double-top formation. On the downside, buyers are currently focused on 1.3770, 1.3747, and 1.3708 as key intraday demand levels, with 1.3750 serving as the psychological pivot point. Support levels are observed at 1.3667 (9-day EMA), 1.3610 (wedge base), 1.3580 (100-period 4H average), 1.3486 (prior resistance pivot), and 1.3461 (50-day EMA). Provided that GBP/USD remains above 1.3708–1.3667 and maintains the wedge base near 1.3610, any decline should be viewed as a correction within an ongoing uptrend rather than a definitive peak. The movement from the early-November low exhibits characteristics of a well-defined impulsive wave structure, aligning with the strength observed in the spot market. From the November 5 trough, wave ((i)) advanced to 1.3568, subsequently retracing to 1.3340 in wave ((ii)), which was structured as a three-leg zigzag with wave (a) at 1.3390, wave (b) at 1.3495, and wave (c) at 1.3340. The reset facilitated a new upward movement in wave ((iii)). Beginning at 1.3340, wave (i) reached a peak around 1.3491, followed by wave (ii) which retraced to 1.3400, and wave (iii) surged significantly to 1.3869. The retracement to 1.3749 aligns with wave (iv), and the price is currently progressing through wave (v) of ((iii)), which typically aims for the 1.3900–1.3925 range. Once that peak is established, a more significant wave ((iv)) correction may pull GBP/USD down to the range of 1.3700–1.3667, while still preserving the overarching bullish framework, as long as 1.3610 and 1.3461 remain intact on a closing basis.
The alignment of sentiment indicators with the chart narrative is evident. The daily currency heat map indicates that GBP has emerged as the strongest performer against USD today, appreciating by 0.26%. Currently, the USD is experiencing a broad decline: down 0.34% against the EUR, 0.27% against the CAD, 0.83% against the AUD, 0.59% against the NZD, and 0.50% against the CHF. The GBP is only lagging behind the high-beta AUD and NZD, which generally perform better when risk appetite increases. This combination exemplifies a classic scenario of “sell dollar, rotate into alternatives,” with GBP positioned solidly within the group of beneficiaries. This aligns with risk-reversal pricing that favors sterling calls and with spot activity where each test of 1.3750 attracts buyers instead of liquidation. From a trading perspective, GBP/USD presents a bullish outlook, albeit in a stretched condition. The trend, moving averages, and positioning suggest potential for further upside; however, momentum signals and resistance clusters indicate caution against pursuing positions at 1.3850 or higher. The more straightforward approach is to buy the dip rather than purchasing during the breakout. The appealing demand zone is located within the 1.3770–1.3747 range, allowing for a tolerance down to 1.3708 should volatility increase during the pullback. The area corresponds with intraday demand, the previous breakout level exceeding 1.3750, and the internal configuration of the wedge. Provided that the price remains above 1.3708–1.3667 and the wedge base at 1.3610, the prevailing perspective is that any dips are merely corrective pauses in a movement that is likely to continue towards targets of 1.3869, 1.3900, 1.3925, and ultimately reaching 1.4000 and 1.4248. A daily close beneath 1.3747, accompanied by a sustained breach under 1.3708, would lend significant credibility to the double-top scenario and pave the way toward 1.3667, 1.3610, and 1.3580, with 1.3486–1.3461 serving as the medium-term bearish target.