GBP/USD retraces its recent losses and is trading around 1.2550 during the European hours on Tuesday. Looking at the daily chart, the pair is positioned above the upper boundary of the descending channel pattern, which suggests a weakening bearish bias.
Momentum Indicators
However, the 14-day Relative Strength Index (RSI) stays below the 50 level. This indicates a persistent bearish bias. Also, the GBP/USD pair is below its nine- and 14-day Exponential Moving Averages (EMAs). This shows that the short-term price momentum is weaker. But a decisive break above these EMAs could mean a shift from a bearish to a bullish bias.
Downside Scenarios for GBP/USD
Testing Support at Descending Channel
On the downside, the GBP/USD pair is testing the upper boundary of the descending channel near the 1.2540 level. If it goes back into the channel, the bearish bias would be reinforced. This could drive the pair towards its seven-month low of 1.2487, which was last recorded on November 22.
Further Downside Movements
A decisive break below the seven-month low could make the bearish momentum even stronger. It might then drive the GBP/USD pair towards its yearly low of 1.2299, which was last recorded on April 22. And if it keeps going down, it could target the lower boundary of the descending channel near the 1.2160 level.
Upside Scenarios for GBP/USD
Immediate Resistance
On the upside, the GBP/USD pair is testing the immediate barrier at its nine-day Exponential Moving Average (EMA) at 1.2565.
Further Resistance
After that, there’s the 14-day EMA at 1.2585. If the pair successfully breaks above these levels, it could boost bullish momentum. This would open the way for a move towards the six-week high of 1.2811, which was reached on December 6.
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