Bearish divergence on GBPUSD daily chart; sterling overbought?
GBPUSD has been in an uptrend since April 22, 2024, and has accumulated a 9.19% increase between April 22 and September 26. On August 27, the RSI indicator recorded a reading of 74.96, signalling a possible overbought situation. On September 26, the reading was at 71.68, which was slightly lower than the previous RSI reading.
On the other hand, on August 27, GBPUSD was trading at 1.3264 before rallying to 1.3431 on September 26 – a marked gain over a monthly timespan. Sterling has since given up some of its recent gains, trading around the 1.33 mark.
The pound has notably been the top performer among G10 currencies this year, rising over 5% against the dollar and 4% against the euro. Its strong rally began in late April, following a brief dip below $1.23.
Sterling has appreciated by close to 10% against the U.S. dollar since last October. On a trade-weighted basis, sterling is now at its highest level since the UK's 2016 Brexit vote, just 2% below its pre-referendum level.
Blistering rally for sterling on BoE, Fed rate divergence
The currency's gains have been driven by expectations that UK interest rates will stay higher than those of other nations, due to persistent inflation in services and a surprisingly resilient economy.
Technical indicators, however, indicate that there may be signs of a potential reverse in the trend for sterling. Some analysts have also noted that the sterling-to-dollar pair may start to look expensive soon as expectations for a 50-basis-point (bps) rate cut by the U.S. Federal Reserve will start to look misplaced.
Fed Chair Jerome Powell recently pushed back against forecasts of another outsized 50bps cut, saying he sees two more interest rate cuts, totalling 50 basis points, this year as a baseline “if the economy performs as expected.”
Bearish divergence may be in play for GBPUSD
A classic bearish divergence occurs when the price reaches a higher high than the previous one, while the oscillator forms a lower high. This pattern often indicates a potential for a stronger pullback or trend reversal.
On October 1st, the price dipped below the 8-period Simple Moving Average, and with a classic bearish divergence currently in play, this suggests a potential bearish pullback in GBP/USD.
The sterling-to-dollar pair may drop to the 1.3028 level, where a support zone is expected on the daily chart.
Disclaimer:
76.3% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Past performance is not necessarily indicative of future results. The value of investments may fall as well as rise and the investor may not get back the amount initially invested. This content is not intended for nor applicable to residents of the UK.
On the other hand, on August 27, GBPUSD was trading at 1.3264 before rallying to 1.3431 on September 26 – a marked gain over a monthly timespan. Sterling has since given up some of its recent gains, trading around the 1.33 mark.
The pound has notably been the top performer among G10 currencies this year, rising over 5% against the dollar and 4% against the euro. Its strong rally began in late April, following a brief dip below $1.23.
Sterling has appreciated by close to 10% against the U.S. dollar since last October. On a trade-weighted basis, sterling is now at its highest level since the UK's 2016 Brexit vote, just 2% below its pre-referendum level.
Blistering rally for sterling on BoE, Fed rate divergence
The currency's gains have been driven by expectations that UK interest rates will stay higher than those of other nations, due to persistent inflation in services and a surprisingly resilient economy.
Technical indicators, however, indicate that there may be signs of a potential reverse in the trend for sterling. Some analysts have also noted that the sterling-to-dollar pair may start to look expensive soon as expectations for a 50-basis-point (bps) rate cut by the U.S. Federal Reserve will start to look misplaced.
Fed Chair Jerome Powell recently pushed back against forecasts of another outsized 50bps cut, saying he sees two more interest rate cuts, totalling 50 basis points, this year as a baseline “if the economy performs as expected.”
Bearish divergence may be in play for GBPUSD
A classic bearish divergence occurs when the price reaches a higher high than the previous one, while the oscillator forms a lower high. This pattern often indicates a potential for a stronger pullback or trend reversal.
On October 1st, the price dipped below the 8-period Simple Moving Average, and with a classic bearish divergence currently in play, this suggests a potential bearish pullback in GBP/USD.
The sterling-to-dollar pair may drop to the 1.3028 level, where a support zone is expected on the daily chart.
Disclaimer:
76.3% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Past performance is not necessarily indicative of future results. The value of investments may fall as well as rise and the investor may not get back the amount initially invested. This content is not intended for nor applicable to residents of the UK.
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