With cautious movements, the GBP/USD exchange rate against the US dollar appears to be recovering from peak selling levels at the beginning of October trading. This means the possibility of achieving more progress in the coming days, especially if US economic data and events indicate that the US economy has become more quiet. At the end of last week's trading, the price of the GBP/USD pair tried to rebound higher, but its gains stopped at the resistance level of 1.2271, and it quickly returned to the broader general downward trend, stable around the level of 1.2155 at the time of writing the analysis.
Overall, the pound is about 7.0% below its mid-July highs after a multi-week sell-off that appears to be well established and will likely continue to decline over the coming weeks. However, the pace of selling has pushed the GBP/USD exchange rate into oversold territory with the daily chart's Relative Strength Index (RSI) falling to a low of 20, indicating an asset that is heavily oversold. The exchange rate then rebounded from the lowest level at 1.2110, and the question in the coming days is how far can this counter-trend rebound reach?
Commenting on the performance of the currency pair. Sean Osborne, senior FX analyst at Scotiabank, says the short-term technical setup for sterling is bullish, but ultimately any gains over the coming days are corrective in nature. He added, “The strong gains in the pound sterling during the price movement late in the week returned it to the opening levels of this week’s trading.” Sterling selling also appears oversold and the risk of a correction is strengthening, based on a potential bullish close during the week.” He added that any corrective gains in the coming days may extend to the 1.2350 resistance in the short term.
In the same regard, Thomas Flory, an expert at UBS, says: “We see a sideways path for GBP/USD in the near term, with the US economy holding up better than anywhere else and a gradual recovery until the end of the year towards the 1.24 resistance.”
In general, the calendar of economic events and data in the United Kingdom is barren, and the focus of the markets this week is firmly focused on the United States of America, where the focus is on a large number of data releases. Today the US JOLT jobs report will be released at 15:00 GMT, which will give an indication of how the US labor market is developing. We've already seen that last month's release sparked a market reaction, so we'll be keeping an eye on the August release.
Tomorrow, the US ISM Non-Manufacturing PMI will be released at 15:00 GMT, where the number is expected to come in at 54, which will be consistent with the continued and strong growth of the US economy. Such a result would not be surprising in itself, given that the issue of US outperformance is now well understood, and thus the broader market reaction would be less than expected.
This week ends with the very important US Non-Farm Payrolls release which tends to give the final word on how the US jobs market will develop. The headline jobs number is expected to hit 150,000, and the pace will prove supportive of the US dollar as it is likely to support US yields as markets bet that the Fed has no choice but to go ahead with another US interest rate hike in November.
However, any decrease from the target may lead to a decline in these expectations, which may lead to weakness in the US dollar ahead of the weekend.
Sterling forecast against the dollar today:
- The psychological support target of 1.2000 is still valid, as the downward pressures for the GBP/USD currency pair are still present and increasing.
- This may happen quickly if US job numbers come in stronger than expectations, in addition to tough statements from US Federal Reserve officials.
- On the other hand, according to the performance on the daily chart, there will be no first break of the general downward trend for the GBP/USD pair without moving towards the resistance levels of 1.2320 and 1.2500, respectively.
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