GBP/USD Price Analysis: Defending 21 DMA is critical to unleashing additional recovery
- GBP/USD is challenging 1.1300 support amid renewed weakness.
- The US dollar is consolidating its decline despite Asia's risk-on mood.
- Cable recaptured 21 DMA on a closing basis but RSI still remains bearish.
GBP/USD is retreating from fresh eight-day highs at 1.1344, as the US dollar has paused its recent decline despite the extension of the risk-on trading in Asia this Tuesday.
The dollar was sold-off heavily into the market optimism, with the downside exacerbated by a miss on the US ISM Manufacturing PMI and the Prices Paid component, which helped the pair extend its recovery momentum.
Cable received a fresh life on Monday after the UK Finance Minister Kwasi Kwarteng confirmed the government’s U-turn on its previous higher tax rate cut announcement. Kwarteng and PM Liz Truss decided that they will not go ahead with a plan to scrap the 45% income tax rate.
However, bulls seem to be losing momentum at the moment and challenge the 1.1300 level amid a relatively quiet economic calendar on both sides of the Atlantic. Although the speeches by the Fed officials Williams and Mester will be closely followed later in the NA session. Any updates on the UK political front as well as on the policy reforms will have a significant impact on the major.
As observed on a daily chart, GBP/USD extended its recovery from 37-year lows and recaptured the flattish 21-Daily Moving Average (DMA) at 1.1293 on a daily closing basis.
Although it remains to be seen if bulls manage to defend the latter going forward, as the 14-day Relative Strength Index (RSI) is still lurking below the midline.
If the pair drops once again below that level, then a move back towards 1.1250 cannot be ruled out. Further south, the 1.1200 round level could come into play.
Alternatively, bulls need acceptance above the 1.1350 psychological level to unleash the further upside but the 21 DMA barrier should hold up.
The September 22 high of 1.1364 will be next on GBP buyers’ radars.
GBP/USD: Daily chart
GBP/USD: Additional technical levels