GBP/USD Forecast: Additional losses likely if 1.2300 support fails

GBP/USD has continued to stretch lower toward 1.2300 early Tuesday with the US Dollar preserving its strength amid risk aversion. In case buyers fail to defend 1.2300, Pound Sterling could suffer additional losses in the near term. 

On the first trading day of the week, the negative shift witnessed in market mood helped the US Dollar find demand as a safe haven. The S&P 500 Index lost more than 1% after having gained 2.5% last week and the Nasdaq Composite fell 2% on a daily basis. In the European session, US stock index futures are down between 0.3% and 0.4%. An extended slide in Wall Street's main indexes after the opening bell could provide a boost to the US Dollar and force GBP/USD to stretch lower.

Although the data from China showed that the NBS Manufacturing PMI and the Non-Manufacturing PMI both recovered above 50 in January, investors remain cautious while gearing up for the critical central bank policy meetings.

The Conference Board will publish the January US Consumer Confidence Index data later in the day. Market participants are likely to ignore the headline figure and pay attention to the one-year inflation expectation component, which declined to 6.7% in December from 7.1%. Another similar decline could limit the US Dollar's gains with the initial reaction but GBP/USD is likely to have a hard time staging a rebound unless the risk sentiment improves.

GBP/USD Technical Analysis

GBP/USD faces key technical support at 1.2300, where the Fibonacci 23.6% retracement level of the latest uptrend and the 100-period Simple Moving Average (SMA) on the four-hour chart meet. If the pair falls below that level and starts using is as resistance, it could fall toward 1.2270 (static level) and 1.2210 (Fibonacci 38.2% retracement).

On the upside, 1.2350 (static level) aligns as interim resistance before 1.2375 (50-period SMA, 20-period SMA) and 1.2400 (psychological level, static level).