Early in the American session, the British pound is trading below the 21 SMA and the 200 EMA under bearish pressure. In the last few hours, it has found strong support at the 1.2050 area, this level gave the GBP/USD a technical bounce.
Over the next few hours, the British pound is expected to consolidate above the 1.2050 level. There will be an opportunity to resume buying above this level. In the event that it consolidates above this level, we can buy with targets at the top of the downtrend channel around 1.2160 and at 4/8 Murray located at 1.2206.
Rising geopolitical tensions between the US and China, combined with weak data releases from China, seem to be weakening risk appetite, and investors are taking refuge in the US dollar.
The US dollar index is consolidating above the 200 EMA located at 105.71. As long as it continues to trade above this level, the dollar is likely to continue to gain strength and could reach the resistance zone at 106.25.
The strength of the US dollar could continue to put downward pressure on the GBP/USD pair. A daily close and consolidation below 1.2050 could drop the price and push it to the psychological level of 1.2000 and even reach the area of 2/8 Murray located at 1.1962.
On the other hand, in case the GBP/USD pair breaks out the downtrend channel formed since August 10, we could expect it to resume the bullish bias. The pair may may reach 1.2207 and could even reach 5/8 Murray at 1.2329.
In the European session, the eagle indicator has reached the 5-point zone which represents extreme oversold conditions, it is likely that if the pound consolidates above 1.2050, it will be a clear signal to buy with targets at 1.2145 and 1.2207.
