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Title: GBP/USD: Bulls gather strength to take on 50 DMA ahead of US GDP

July 28, 2022 03:58 AM ET

By: AnalysisWatch

GBP/USD is trading slightly higher and defending the 1.2150 level, after reaching a new monthly high of 1.2186 in Asian trading.

The slight recovery of the US dollar across the board, triggered by the rise in Treasury yields, limits the recovery gains of the cable. As the dust settles on the Fed's less aggressive outcome, U.S. rates are gaining ground as risk flows dominate and negatively weigh on the safe haven U.S. Treasury bond.

The Fed raised rates by an expected 75 basis points on Wednesday, but took a meeting-by-meeting approach to steering rates, paying attention to slowing economic activity and fighting inflation.

On the other hand, GBP bulls are taking the political developments in the UK in stride, although fears of a possible recession in the country's housing sector do not bode well for the domestic currency. Looking ahead, markets are awaiting the release of the advanced US GDP for the second quarter for fresh clues on the state of the economy and possible Fed action in the upcoming meetings.

As seen on the daily chart, the pair has established above the flattening 21-day moving average (DMA), which is currently at 1.9898, where the rising trend line is also finding support.

It will take a lot for the bears to break the latter as it is a strong downside barrier.

Moreover, the 14-day Relative Strength Index (RSI) is holding above the midline, which underpins the bullish potential.

Bulls need a sustained move above the 1.2186 supply zone to accelerate the recovery momentum, keeping an eye on the bearish 50 DMA at 1.2229.

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