Early in the American session, the British pound is trading at around 1.2103. Having peaked at 1.2245, it is pulling back and is likely to continue the bearish move and could reach the bottom of the uptrend channel at around 1.2050.
Risk appetite could limit GBP/USD's decline in the short term, but investors may refrain from buying the British pound unless there are clear signs of its consolidation above 1.2207 (4/8 Murray).
A pause in the US dollar's rally and investors' profit-taking fueled the GBP/USD climb this week. Cautious comments from FOMC Chairman Jerome Powell, the short-term outlook on interest rates, and disappointing second-quarter GDP data in the US assured market participants to stop taking refuge in the dollar and turned to risk assets.
For now, the British pound maintains its uptrend channel. In the European session, the GBP/USD pair tested the top of the bullish channel, was unable to break it and made a strong technical correction.
If the British pound continues to trade within the uptrend channel, any bounce at around 1.2103 or 1.2050- 1.2070 will be seen as a buying opportunity. GBP/USD could resume the bullish bias and it could reach the area of 4/8 Murray again at 1.2207.
On the other hand, in the event that the British pound closes below 1.2050 on the daily chart, it will be a signal to sell and the pair could again fall towards 2/8 Murray at 1.1962.
On July 27, the eagle indicator reached the extremely overbought zone. The current technical correction is a sign that the market is exhausted and the technical correction is likely to continue in the coming days and then the pound may resume its upward movement.
Our trading plan for the next few hours is to wait for a key zone to buy at around 1.2050 - 1.2070 with targets at 1.2103 (21 SMA), 1.2153, and 1.2207 (4/8 Murray).