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GBP/USD Testing Former Support (March 26, 2013)

GBP/USD's recent rallies might be cut short this week as the pair is currently testing the former support zone around 1.5200 to 1.5250. This level has been broken in February when the BOE reiterated their willingness to implement further easing at the expense of stronger inflationary pressures.

However, the U.K. economy has enjoyed some good news at the start of March as it saw some improvements in economic data and received a less dovish outlook from the BOE. In addition to the short squeeze, these factors were enough to push the pair right back up from its previous lows around 1.4850 back to the 1.5200 area.

There are no major reports due from the U.K. this week, which might mean that there's no catalyst for an upside breakout. The support-turned-resistance level could hold for now as traders book profits ahead of the shortened trading week. Take note also that it's the end of the month and the quarter, which could lead to a profit-taking scenario.

Shorting around 1.5200 with a stop above 1.5250 and a target at 1.5000 would yield a pretty good reward-to-risk ratio for a trade until the middle of the week.

(click to enlarge)Click to enlarge