GBP/USD technical analysis: Eyes corrective rally on bullish RSI divergence

• GBP/USD’s 14-day RSI has diverged in favor of the bulls.
• The pair charted a bullish outside day candle on Friday – an early warning of a potential bear-to-bull trend change.

With the daily chart flashing signs of seller exhaustion, GBP/USD looks set to test the May 27 high of 1.2748 in the short-term.

To start with, the GBP/USD pair rose 0.26% on Monday, confirming a bullish divergence of the 14-day relative strength index (RSI). A bullish divergence occurs when the indicator creates higher lows as opposed to lower lows on the price chart and is considered a sign of seller exhaustion.

Further, the pair closed well above 1.2645 on Monday, validating the bullish outside day candle created on Friday.

The 5- and 10-day moving averages (MAs) have also flattened out, signaling a loss of bearish momentum.

So, the path of least resistance is on the higher side and the pair could challenge 1.2748 in the next few days. Acceptance above that level would violate the bearish lower highs and lower lows pattern and confirm a bearish-to-bullish trend change.

As of writing, the pair is trading largely unchanged on the day at 1.2660.

Daily chart

Trend: Corrective rally likely

Pivot points