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GBP/USD Technical Analysis: Bearish Trend Stronger

Sterling weakness threatens to spill over into the final trading sessions of 2022 as traders look forward to what economists across the spectrum say will be another tough year for the UK. There was generally no local data or news on the consequences, ensuring that the negative momentum seen in the run-up to Christmas in holiday-poor markets will continue.

The exchange rate of the GBP/USD currency pair is still on the threshold of the psychological support 1.2000, which confirms the strength and control of bears.

Overall, the pound joined the New Zealand dollar at the bottom of the chart in pre-Christmas trading even as global equity markets made gains, which proved surprising given that these two "high beta" currencies tend to outperform in such circumstances. Therefore, even a “Santa Claus rally” in global stocks before the new year may not be enough to trigger a sharp rebound in the value of the pound.

For his part, Christopher Wong, an analyst at OCBC Bank, says: “The pound sterling has continued to drift lower, in line with our caution of declining play in the near term.” He adds, “The bearish momentum on the daily chart is intact while the RSI is declining.” And, “We retain our slight cautious outlook on the pound amid stagflationary fears.”

UK GDP data released before Christmas revealed that Britain was the only G7 economy with a third-quarter GDP below its pre-Covid level. Samuel Tombs, chief UK economist at Pantheon Macroeconomics, says: “The UK is likely to continue to underperform; We expect Britain to suffer the deepest recession among the major advanced economies in 2023, due to severe headwinds from both monetary and fiscal policy.

The Bank of England forecasts the economic downturn could last for up to two years, while the macroeconomic Pantheon projects a peak-to-bottom decline of 2.5% in GDP and a 1.5% drop in 2023, with both also supported by cuts in government spending and increases in government spending

Analysis by KPMG shows that the British economy will contract by 1.3% in 2023, amid a relatively shallow but prolonged recession.

According to the latest UK Economic Outlook released by KPMG, this decline will be followed by a partial recovery in 2024, which could see GDP rise by 0.2%. “The sterling outlook remains muted on cyclical weakness and balance of payments sustainability concerns,” says Claudio Wewell, FX Analyst at J. Safra Saracen. “According to our projections, the UK economy will contract throughout the next year and the first half of 2024 – for longer than other advanced economies.” Meanwhile, the Euro remains in the lead against the British Pound and the Dollar amid further declines in European gas prices. European record prices fell as much as 30% last week and fell another 3.5% on December 27 as weather forecasts showed that northern Europe would see above-average temperatures in the first part of January 2023.

Sterling forecast against the dollar today:

  • The general trend of the GBP/USD pair is still bearish, as long as it is stable.
  • It may breach the psychological support 1.2000, and if this happens, the bears will be on a date to move towards the support levels 1.1935 and 1.1865, respectively.
  • On the other hand, as I mentioned before, the breach of the resistance at 1.2330 will be important for the bulls to rule.
  • I do not expect the possibility of this happening in the last hours of the trading year 2022, as the currency pair does not await important and influential data.

There is a reluctance on the part of investors, which greatly weakens the liquidity in the markets.

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Mahmoud Abdallah
About Mahmoud Abdallah
Mahmoud has been working fulltime in the Foreign Exchange markets for 12 years. Offers his analysis, articles and recommendations at the most renewed Arabic websites specialized in the global financial markets, and his experience gained a lot of interest among Arab traders. Works on providing technical analysis, market news, free signals and more with follow up for at least 12 hours a day, and aims to simplify forex trading and the concept of trading for his audience.

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