GBP/USD Forecast: Correction could be in the books before the next leg higher

GBP/USD has edged slightly lower after meeting resistance near 1.2100.
The technical picture suggests there could be a technical correction in the short term.
US bond and stock markets will be closed in observance of Thanksgiving Day holiday.

Eren Sengezer FXStreet

GBP/USD has gone into a consolidation phase below 1.2100 following Wednesday's rally. In the absence of high-impact macroeconomic data releases, market participants will pay close attention to comments from Bank of England (BoE) officials. Meanwhile, the technical outlook shows that the pair is overbought and that it might need to make a downward correction before building on its recent gains.

The data published by S&P Global revealed on Wednesday that the business activity in the US service and manufacturing sector contracted in November with respective PMIs declining to 47.6 and 46.1. "Demand conditions worsened as the fourth quarter progressed, with new orders across the private sector falling in November at the fastest pace since the initial pandemic wave in May 2020," S&P Global noted.

The minutes of the FOMC's latest meeting showed that policymakers saw the possibility of recession next year. Regarding the rate outlook, the publication revealed that members saw it appropriate to slow the pace of rate hikes soon so they would have more time to evaluate the lagging effects of the policy actions taken so far.

The FOMC Minutes' dovish tone and the disappointing PMI surveys caused the US Dollar to come under heavy selling pressure, providing a boost to GBP/USD.

Meanwhile, BOE Chief Economist Huw Pill said on Wednesday that further policy action will likely be required to ensure that inflation returns sustainably to the 2% target, helping the Pound Sterling preserve its strength. BoE Deputy Governor Dave Ramsden and Pill are scheduled to speak later in the day and GBP/USD is likely to hold its ground unless they deliver dovish remarks.

In the second half of the day, stock and bond markets in the US will be closed in observance of the Thanksgiving Day holiday, possibly limiting the pair's action.

GBP/USD Technical Analysis

GBP/USD seems to have met resistance at 1.2100. The Relative Strength Index (RSI) indicator on the four-hour chart holds above 70, suggesting that the pair could make a technical correction before attempting to clear that hurdle. On the downside, 1.2000 (psychological level, former resistance) aligns as next support before 1.1950 (20-period Sİmple Moving Average (SMA)) and 1.1900 (psychological level, 50-period SMA).

In case GBP/USD manages to flip 1.2100 into support, it could target 1.2200 (psychological level, static level) and 1.2250 (static level) next.

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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.

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