Pound Sterling vs US Dollar stabilizes above the key 1.2600 level prior to Nonfarm Payrolls data on Friday.

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• Pound Sterling vs US Dollar stabilizes above the key 1.2600 level prior to Nonfarm Payrolls data on Friday.
• The Pound benefits from monetary policy divergence with the US Dollar as elevated inflation suggests more hikes in the UK.
• Is the break above April highs in the upper 1.25s decisive enough to extend? Friday’s close could be critical in deciding.

The Pound Sterling (GBP) finally establishes a foothold above the 1.2600 handle against the US Dollar (USD) ahead of the Nonfarm Payrolls (NFP) release on Friday. The Pound Sterling benefits from the UK monetary policy divergence with the US, the after effects of positive UK PMI data, and early local election results to climb to fresh year-to-date highs. The US Dollar retreats, meanwhile, on renewed banking crisis fears as more regional lenders flag concerns.

From a technical perspective, GBP/USD continues to make new highs in a broadly bullish long-term uptrend. Given the old adage that “the trend is your friend” longs are, therefore, favored over shorts.

GBP/USD has pushed to new year-to-date highs above 1.2600 overnight, extending the established uptrend that began at the September 2022 lows. The overall trend remains bullish favoring Pound Sterling longs over shorts.

GBP/USD: Daily Chart

It is still difficult to determine whether the recent break above the 1.2593 April 28 highs can be classed as ‘decisive’ and therefore indicative of further gains to come. If Friday ends on a strong bullish close near its highs it will suggest the break has been decisive, as it will complete three bullish green up days in a row that have in aggregate breached the April resistance highs. This would suggest the break is not ‘false’ or a bull trap and embolden bulls to push higher. A weak close, however, will bring into doubt the validity of the breakout and could lead to declines.

If the breakout is decisive and price runs higher then the next key resistance level at circa 1.2680 provides an upside target for the pair.

Decisive breaks are usually characterized by moves that begin with a strong green daily bar that breaks above the ceiling level or key resistance high in question. Such breaks may be completed by a single long-green bar with price closing near the highs of the day, or alternatively, three consecutive green bars that break higher. Such insignia provide confirmation that the break is not a ‘false break’ or bull trap.

The Relative Strength Index (RSI) remains below the overbought level and is creeping higher breaking the slight bearish divergence of recent days. This is a mildly supportive sign for the pair and may be indicative of further gains to come.

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