GBP/USD Eyes 1.3700 After 1.6% Rally as Dollar Weakens, RSI Hits Overbought

The British pound (GBP) continues its upward climb against the U.S. dollar (USD), with GBP/USD consolidating gains around 1.3594, its highest level since early 2018. The pair has surged by nearly 1.6% over the past week, driven by relentless USD selling and a cautious market tone. With U.K. and U.S. markets closed on Monday for national holidays, trading remains thin, yet bullish momentum persists.

The USD’s weakness stems from investor concerns over U.S. fiscal policy and heightened uncertainty surrounding the country’s spending trajectory. Over the weekend, U.S. Senator Ron Johnson warned that sufficient votes might block President Trump’s tax reforms until deficit reduction commitments are made. Meanwhile, Trump’s decision to delay a planned 50% tariff on European goods until July 9 has temporarily eased trade tensions, but skepticism over long-term resolutions persists.

Key Technical Levels for GBP/USD

While GBP/USD retains a bullish bias, technical indicators suggest potential overbought conditions:

• Relative Strength Index (RSI) on the 4-hour chart stands well above 70, a sign that momentum could be overstretched.
• Immediate support levels are seen at:
  • 1.3500: Static and psychological support.
  • 1.3470: Midpoint of the ascending channel.
  • 1.3400: Key static level and round number.
• Resistance targets include:
  • 1.3600: Interim resistance at the current high.
  • 1.3700: Upper boundary of the ascending channel, a breakout level to watch.

Given these dynamics, a retracement toward 1.3500 cannot be ruled out if traders opt to take profits. However, a break above 1.3600 could fuel a rally toward 1.3700, marking a potential multi-year high.

Thin Liquidity and Upcoming Catalysts

With U.S. markets closed for Memorial Day, Monday’s trading environment is characterized by reduced liquidity. However, investors are already looking ahead to key macroeconomic data later this week, which could influence GBP/USD’s trajectory:

• U.S. Durable Goods Orders (Wednesday)
• Prelim GDP and PCE Price Index (Thursday and Friday)
• Brexit updates and U.K. economic signals, which could further support the pound

Despite current optimism, traders remain cautious. Without clear progress on U.S. fiscal and trade issues, the USD’s weakness may persist, offering GBP a chance to test higher levels. However, a correction could emerge if market participants reassess U.S. growth prospects or if overbought signals intensify.