GBP/USD eases from multi-month tops, holds above 1.3100 mark

• GBP/USD shot to 4-1/2-month tops on Friday on the back of sustained USD selling.
• Profit-taking kicks in amid extremely overstretched conditions on short-term charts.

The GBP/USD pair trimmed a part of its early strong gains and has now retreated around 35 pips from the 1.3145 area, or the highest level since March 9.

The pair prolonged its recent strong bullish momentum witnessed over the five weeks or so and built on the gains further beyond the 1.3100 mark amid the heavily offered tone surrounding the US dollar. However, extremely overbought conditions on short-term charts held investors from placing fresh bullish bets and led to a range-bound price action during the early part of the European session.

The USD bearish pressure remained unabated on the last trading day of the week amid worries that the continuous surge in the new coronavirus cases could undermine the US economic recovery. The greenback was further pressured by the ongoing downfall in the US Treasury bond yields and the impasse over the next round of the US fiscal stimulus – ahead of the expiry of some earlier provisions on Friday.

Given the GBP/USD pair’s strong rally of nearly 900 pips from late June swing lows, around the 1.2260-55 region, investors now seemed inclined to take some profits off the table. This, in turn, was seen as the only factor behind the pair’s modest intraday pullback, though any subsequent slide might still be seen as a buying opportunity and is more likely to remain limited.

In the absence of any major market-moving economic releases from the UK, the USD price dynamics might continue to play a key role in influencing the pair’s momentum. Later during the early North American session, second-tier US economic data will be looked upon for some trading impetus. Friday’s US economic docket features the release of Core PCE Price Index, Personal Income/Spending data, Chicago PMI and Revised Michigan Consumer Sentiment.

Technical levels to watch