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Bank of America (BofA) FX strategists identified a potential rally for the British Pound against the US Dollar (GBP/USD), citing technical indicators on the currency’s daily and weekly charts.
According to BofA, the daily and weekly charts of GBP/USD present a favorable setup for a rally toward the 200-day and 200-week moving averages, with respective levels of 1.2791 and 1.2750.
The daily chart has indicated a breakout from a downtrend channel, suggesting the formation of a head and shoulders base, and showing higher highs in both the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD).
The weekly chart’s MACD is also starting to trend upward, and the net non-commercial positions versus open interest are at a near two-year short extreme.
The analysts also outlined risks associated with this trade. A decline in the spot price below 1.2249, which was the low on Monday, could indicate a failed hammer or head and shoulders pattern.
Additionally, potential tariffs targeting the UK could cause the Pound to sell off. Another risk includes the possibility of a strong US Non-Farm Payroll (NFP) data release on Friday, February 6, which could lead to a rally in the US Dollar.
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