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The Pound to Dollar exchange rate has been recovering since mid-July and could be on the cusp of crossing an important technical milestone that could signal a more durable recovery.

David Sneddon, technical analyst at Credit Suisse, says only above 1.2057 would the exchange rate mark a near-term base.

A break above here could signal "a deeper recovery".

"GBPUSD remains capped at the 1.2057 early July reaction high but with the USD itself expected to see a deeper setback the risk for a clear break above here remains seen high," says Sneddon in a technical note out at the start of the final week of July.

Pound-Dollar reached its lowest level since the Covid market crisis of early 2020 on July 14 when it fell to 1.1760.

The declines were largely driven the Dollar side of the equation as investors sought the safety of the Greenback amidst an ongoing bear market in stocks.

But, if the break above 1.2057 is achieved "this would see a small base complete to raise the prospect of a deeper but still corrective recovery, with resistance seen initially at 1.2084/89, ahead of the 38.2% retracement of the fall from the late May high at 1.2107," says Sneddon.

Above image of GBP/USD at daily intervals courtesy of Credit Suisse.

"Whilst we would look for this to cap at first, above in due course should see a move to 1.2228/38. With the 55-day average just above here we would look for this to then ideally cap for an eventual resumption of the core downtrend," says Sneddon.

The 55-day moving aver is one of the more commonly followed signals in the forex market which typically identifies the prevalent trend of an exchange rate.

In the case of the Pound-Dollar rate the moving average shows an ongoing trend of decline.

Sneddon says initial resistance is now located at 1.2057.

He adds that should the recent recovery be capped here a near-term base will be avoided.

"A break below 1.1891/75 now needed to reassert the core downtrend for a fall back to 1.1760 and eventually our 1.1500/1.1409 core objective," says Sneddon. (Set your FX rate alert here).

The key event-risks for the Pound-Dollar exchange rate this week come in the form of Wednesday's Federal Reserve interest rate hike announcement and Thursday's release of U.S. GDP.

Markets are poised for a 75 basis point rate hike, which if delivered would not surprise markets and is therefore relatively neutral for the Dollar; in fact, some analysis shows it could boost GBP/USD.

What will count is the tone set by the Fed and guidance on future interest rate hikes.

Federal Reserve rate hike pricing could meanwhile shift in response to Thursday's GDP data: a worse than expected figure could cool Fed hike expectations, and weigh on the Dollar accordingly.

But a better than expected release could elevated rate hike expectations, thereby restarting the Dollar uptrend and putting the nascent GBP/USD recovery under pressure.

The market is looking for a reading of 0.5% quarter-on-quarter growth for the second quarter.