The Pound has been on a tear lately, surging to a new yearly high against the U.S. dollar. As fears over the global pandemic continue to decline, Sterling entered an uptrend that was seen throughout the entire week. More importantly, U.S. Federal Reserve
Chairman Jerome Powell's speech seems to have fueled the buying pressure behind GBP as the U.S. dollar index plummeted.
The GBP/USD trading pair kicked off the week hovering around $1.309, but it quickly showed that the bulls were taking control of its price action. By noon on August 24th, Sterling was trading at a high of $1.315, representing a 0.43% upswing from the weekly
open. Although this price hurdle was able to reject the Pound from advancing further, triggering a 0.71% correction by the end of the day, demand began to pick up.
Before Monday's close, the buying pressure behind the Pound skyrocketed, spilling over the rest of the week. The uptick in buy orders led to a 1.71% upswing that saw GBP/USD reach a high of $1.328 on Thursday, August 27th. This resistance barrier, however,
was able to contain surging prices at bay. The rejection was followed by a 0.93% correction.
Despite the significance of the pullback, Sterling was able to "shrug off domestic uncertainties," as stated by George Vessey, Currency Strategist at Western Union. What came next was a 1.48% jump that pushed the Pound to a new yearly high of $1.336. While
the U.S. Federal Reserve is planning to allow domestic inflation to rise to 2% in the upcoming months, the GBP/USD was able to capture investors' attention showing signs of strength.
The impressive run-up that Sterling went through against the U.S. dollar over the week of August 24th provided investors with a weekly return of 1.96%.
Signs of an Upcoming Correction Begin to Pop Up
Even after the significant gains that the Pound has been able to provide over the past week, investors must be aware of the different sell signals that are starting to emerge. From a technical perspective, the Tom Demark (TD) Sequential indicator is presenting
a sell signal at a critical resistance level. Due to this price hurdle's strength, the bearish formation would likely be validated when the next trading session opens.
This technical index also forecasts a pessimistic outlook when looking at GBP/USD's weekly chart. Although the current candlestick is a green eight candle, there is a high probability that a green nine candlestick will develop next week. Such a bearish pattern
estimates that Sterling could be bound for a one to four weekly candlesticks correction.
Renewed weakness in the GBP is still a major probability, especially when considering the high levels of uncertainty around Brexit. The resurgence of COVID-19 cases in Great Britain and some of the most important countries in the European Union may also
affect Sterling's ability to continue rising.
Therefore, investors must watch out for the $1.325 support and the $1.335 resistance, from a macro perspective. Closing below this price range could lead to a downswing towards $1.29-$1.28 while breaking above it may see Sterling rise towards $1.37.