GBPUSD tested 1.2300 resistance today, a failed level I mentioned in Saturday’s forex forecast.
The 1.2300 area served as resistance for the pound between June and December last year, right before the mid-December breakout.
However, as mentioned in Saturday’s video, that breakout failed on December 15th.
The failure at 1.2300 flipped the level back to resistance, which is playing a factor early this week.
That will be a massive test for GBPUSD bulls, especially as the US Dollar Index (DXY) approaches a confluence of support.
Notice that DXY 101.30 is descending trend line support and the May 2022 swing low.
That area could come into play midweek, the same time we get Wednesday’s US Producer Price Index (PPI) numbers.
Given the significance of 101.30 and the timing of Wednesday’s PPI, I’m not ruling out a midweek reversal.
That said, the USD remains in a short-term downtrend while below 103.50 and 105.60.
So what does this mean for trading GBPUSD this week?
Despite a mere 11.9% DXY weighting, the pound shares a near-perfect inverse relationship with the dollar index.
So wherever the DXY trends this week, GBPUSD will likely do the opposite.
With that in mind, DXY 101.30 support and GBPUSD 1.2300 resistance become must-watch levels for anyone trading the pound this week.
But as mentioned over the weekend, the pound is a range-bound market.
That means traders must be quick to take profit and avoid getting overly ambitious, at least until the pair breaks free.
Key support for GBPUSD is close at 1.2110 and is quickly becoming a confluence of support based on the September 26th trend line.
The uptrend here is intact while that trend line support at 1.2030 holds, making shorts challenging.
And at the same time, longs are unfavorable without bullish price action from support or a breakout above 1.2300 and 1.2450.