- During last week's trading the pound sterling fell significantly against the stronger dollar.
- The losses of the GBP/USD pair were extended towards the support level 1.1841, before rebounding last Friday, reaching the resistance level 1.2099, which closed the week's trading near it.
- Ahead of the US jobs data, it appears that the GBP/USD may be heading to test nearby technical support around 1.18 on the charts, although some analysts say losses to 1.1650 are also possible.
Overall, the pound sterling was one of the worst performing G20 currencies on Friday when it rose against the Canadian dollar, Swedish krona, South African rand, and Japanese yen while giving up gains against all other currencies in the basket amid further strengthening of the US dollar.
Dollars were broadly bought after economic data indicated that labor demand in the US remained strong through the end of the year including the December and November payroll numbers from the Bureau of Labor Statistics. Commenting on this, Chris Turner, Global Markets Analyst at ING, says: “In general, we expect the pound to remain weak and any stronger US jobs data may merit a move to 1.1780/1800.” “The most obvious target at 1.1650 seems very far away,” he adds. Before that, the pound seemed stable around 1.19 last Thursday, a level that closely coincides with the 55-day moving average. It fell further in the London session on Friday and may be at risk of extended declines in the coming days. Friday's losses offered a 50% Fibonacci retracement of the November rally around 1.1802 but could see quick lows at 1.1649 if tested if the dollar rises further or if sterling itself comes under pressure.
Commenting on the performance of the currency pair. “With an investment horizon of $6 million, we will be looking for buying opportunities in GBP/USD on dips below 1.20,” says Stephen Gallo, forex analyst at BMO Capital Markets. “Using a short-term investment horizon again, we will tend to sell the 1.22 level in cable price.”
While dollar demand was the dominant driver of GBP/USD's losses last week, data from the UK economy did little to encourage GBP appetite and could lead to more selling in the future. The analyst warns that "sterling will initially be more negative if wage and inflation developments in the UK push the Bank of England towards a more dovish stance on policy over the coming months."
On the other hand, the S&P global purchasing managers' index numbers on Friday indicated that the British construction sector fell deeper into recession in December, while the Halifax numbers indicated that house prices fell by 1.5%, a few days after the Bank of England data showed a decline Mortgage approvals are at their lowest levels since May 2020. Other data from the Bank of England showed that households are increasingly into credit and business expectations for inflation remain high at multiples of the BoE's target, while global S&P surveys of purchasing managers' indexes warn that The British economy was probably in recession during the last quarter.
Technical outlook for the GBP/USD pair today:
- In the near term and according to the performance on the hourly chart, it appears that the GBP/USD is trading within a bearish channel formation.
- This indicates significant short-term bearish momentum in market sentiment.
- The bears will target extended declines around 1.1878 or lower at 1.1824.
- On the other hand, the bulls will be looking to pounce on potential retracements around 1.1981 or higher at 1.2029 resistance.
On the long term, and according to the performance on the daily chart, it appears that the GBP/USD is trading within a bearish channel formation. This indicates a significant long-term bearish momentum in market sentiment. Therefore, the bears will be looking to extend the current range of declines towards 1.1788 or below to support 1.1643. On the other hand, bulls will target potential recovery profits around 1.2071 or higher at 1.2209 resistance. I still prefer selling the GBP/USD from every upside.
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