Early in the American session, the British pound (GBP/USD) is trading above the 21 SMA and below the downtrend channel formed on June 21.
On July 6th, the British pound reached a low at 1.1874. This level coincides with the bottom of the downtrend channel which gave it a strong technical bounce and the pound reached the top of the downtrend channel at 1.2054.
According to the 4-hour chart, we can see that the pound failed to break out of this channel and retraced quickly. However, GBP is expected to resume the bullish strength and can break out of this zone and reach the 200 EMA located at 1.2265.
On the other hand, if the British pound consolidates and closes below the 21 SMA at 1.1966 on the daily chart, it could extend the downward movement and is likely to reach 1.19 and even 1.1865.
Additionally, the sharp break on daily charts above the psychological level of 1.20 could give a positive outlook for the pound. We could expect next week that GBP/USD could reach the 2/8 Murray resistance zone at 1.2207 and could even reach the 200 EMA at 1.2265.
Our trading plan will be to buy GBP/USD at current levels or wait for a technical bounce off around the 21 SMA at 1.1966 with targets at 1.2030 and 1.2180.