GBP/USD Near Channel Breakout?

Boosted by a weaker US Dollar, the GBP/USD bounced from six-month lows near 1.2230 and rose to the 1.2300 area. However, the Pound remains among the worst performers following the surprising accommodative stance of the Bank of England. The Relative Strength Index (RSI) indicator on the four-hour chart stays below 30, and GBP/USD trades within touching distance of the lower limit of the descending regression channel, indicating oversold conditions.

The level of 1.2300 sets up as initial support, and a four-hour close below that level could attract sellers. In this scenario, 1.2240 (static level from March) could be set as the next bearish target before 1.2200 (psychological level, static level).

On the upside, the first resistance is located at 1.2330 (mid-point of the descending channel) before 1.2360 (upper limit of the descending channel) and 1.2400 (static level, psychological level).

After rising above 1.2400 during the European trading hours on Wednesday, GBP/USD made a sharp U-turn and closed the day in negative territory. The pair extended its slide in the first half of the day on Thursday and touched its lowest level since early April below 1.2300.

The Federal Reserve left its policy rate unchanged at 5.25%-5.5%, as expected. The revision of the Summary of Projections confirmed that policymakers intend to hike the policy rate once again in 2023. Specifically, the rate cut projection for 2024 was revised lower to 50 basis points (bps) from 100 bps. The hawkish dot plot framework provided a boost to the US Dollar (USD) and forced GBP/USD to stay under bearish pressure.

Let me know what you think. Regards from Nicola, CEO of Forex48 Trading Academy.