GBP/USD Forecast: Bulls struggle to take control despite broad USD weakness
- GBP/USD stays below 1.2800 in the European session on Monday.
- Escalating geopolitical tensions force investors to seek refuge at the beginning of the week.
- US economic docket will feature ISM Services PMI data for July.
GBP/USD closed in positive territory on Friday but failed to build preserve its recovery momentum at the beginning of the week. At the time of press, the pair was trading in the red slightly above 1.2750.
British Pound PRICE Last 7 days
The table below shows the percentage change of British Pound (GBP) against listed major currencies last 7 days. British Pound was the weakest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.87% | 0.77% | -7.48% | 0.33% | 1.48% | -0.66% | -3.75% | |
| EUR | 0.87% | 1.64% | -6.65% | 1.25% | 2.43% | 0.21% | -2.89% | |
| GBP | -0.77% | -1.64% | -8.19% | -0.41% | 0.76% | -1.40% | -4.49% | |
| JPY | 7.48% | 6.65% | 8.19% | 8.40% | 9.70% | 7.37% | 4.02% | |
| CAD | -0.33% | -1.25% | 0.41% | -8.40% | 1.18% | -1.00% | -4.08% | |
| AUD | -1.48% | -2.43% | -0.76% | -9.70% | -1.18% | -2.12% | -5.20% | |
| NZD | 0.66% | -0.21% | 1.40% | -7.37% | 1.00% | 2.12% | -3.14% | |
| CHF | 3.75% | 2.89% | 4.49% | -4.02% | 4.08% | 5.20% | 3.14% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
The selling pressure surrounding the US Dollar (USD) helped GBP/USD erase a portion of its weekly losses in the American session on Friday.
The US Bureau of Labor Statistics (BLS) reported that Nonfarm Payrolls rose 114,000 in July. This reading missed the market expectation for an increase of 175,000 by a wide margin. Other details of the jobs report showed that the Unemployment Rate climbed to 4.3% from 4.1% in June and the annual wage inflation softened to 3.6% from 3.8% in the same period. Following these labor market figures, markets started to price in a 50 basis points Federal Reserve (Fed) rate cut in September and caused the USD to weaken.
Over the weekend, several news outlets reported that Iran was preparing to attack Israel. Investors grow increasingly worried about a deepening conflict in the Middle East and it's potential negative impact on markets. Early Monday, the UK's FTSE 100 Index is down more than 2% on the day and US stock index futures lose between 1.6% and 4%, reflecting the intense flight to safety.
In the second half of the day, the ISM Services PMI data for July will be featured in the US economic docket. Investors see the headline PMI rising into the expansion territory above 51 from 48.8 in June. A disappointing PMI print could make it difficult for the USD to find demand and help GBP/USD find support. Nevertheless, the pair could struggle to gain traction unless risk mood improves in a noticeable way.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator turned south and declined below 40 after rising to 50 on Friday, suggesting that sellers look to retain control of GBP/USD's action. A break below 1.2710-1.2700 support area, where the Fibonacci 78.6% retracement of the latest uptrend, could open the door for an extended decline toward 1.2620 (static level, beginning point of the uptrend).
On the upside, 1.2780 (Fibonacci 61.8% retracement) and 1.2800 (200-period Simple Moving Average, descending trend line) align as immediate resistance levels before 1.2830 (Fibonacci 50% retracement).
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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Author
Eren Sengezer
FXStreet
As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.
