GBP/USD is extending its technical bounce from 1.1758, the lowest level since March 2020. The pair is now trading at 1.1960 with a positive bias. The intraday move higher extended during the early part of the European session which helped the pair to reach a high above 1.1980.
The dollar index (USDX), after reaching a high of 109.11, is going through a technical correction, which has contributed to the rise of GBP/USD.
Risk appetite led to profit taking around the US dollar. If the correction continues this week, the GBP/USD pair could reach the 200 EMA at 1.2152.
According to the 4-hour chart, we can see that the British pound sharply broke the downtrend channel formed on June 23. This is a positive sign but we should expect a confirmation pullback towards the 21 SMA around 1.1864.
A technical bounce around the 21 SMA (1.1861) and around the downtrend channel that was broken could revive the bullish move so that the price could reach 2/8 Murray at around 1.2207.
The eagle indicator is showing a positive signal, which could favor the recovery of the British pound in the coming days. However, the pair is approaching an overbought zone. Below the 200 EMA, it is likely to resume its downtrend.
Our trading plan for the next few hours is to wait for a technical bounce at 1.1865 (21 SMA) to buy, with targets at 1.1962 and 1.20. On the other hand, should it trade above 1/8 Murray (1.1962), it will be a signal to continue buying with targets at 1.20 and 1.2152 (200 EMA).