The Pound Sterling (GBP) tumbled against the US Dollar (USD) on Wednesday, falling below 1.2700 following the release of weak US housing data. This decline, coupled with the US Dollar’s strength near eight-week highs, has shifted the GBP/USD’s momentum towards the bears.
Technical Analysis: Bearish Signals Intensify
The GBP/USD failed to breach the 1.2700 resistance level and has broken below Tuesday’s low, forming a bearish “evening star” candlestick pattern. This three-candle formation, combined with a bearish Relative Strength Index (RSI), indicates a potential continuation of the downward trend.
Key Support Levels to Watch:
- The 50-day Moving Average (DMA) at 1.2636 is the immediate support level to watch.
- If the 50-DMA is breached, the psychological 1.2600 mark could be the next target.
- The 200-DMA at 1.2555 is a crucial long-term support level that could limit further downside.
Potential for Bullish Reversal?
While the current outlook is bearish, a potential bullish reversal could occur if the GBP/USD manages to reclaim the 1.2700 level and break above the resistance-turned-support trendline near 1.2730/40. However, given the prevailing bearish momentum and technical signals, such a reversal seems unlikely in the near term.
Market Drivers:
- Weak US Housing Data: The disappointing housing figures have contributed to the US Dollar’s strength, putting pressure on the GBP/USD pair.
- Dollar Index (DXY) Strength: The DXY trading near eight-week highs is further weighing on the Pound Sterling.
- Technical Indicators: The bearish evening star pattern and declining RSI suggest continued downside potential for the GBP/USD.