GBP/USD Forecast: Dominant dollar sends sterling below critical support, levels

A new month, a fresh blow to sterling – Markit's UK Manufacturing Purchasing Managers' Index for June has been downgraded to 64.9 points from the original read of 64.2, adding to already existing pressure on the pound.

The greater worry is the ongoing spread of the Delta variant of coronavirus, which may still derail the already delayed reopening due on July 19 – and could have a further negative impact later in the year. Britain's vaccination efforts – which drastically decrease severe disease – continue at full speed, but the tide has yet to turn in the number of infections. 

While Brexit remains a sideshow, lingering issues also weigh on sterling. Chancellor of the Exchequer Rishi Sunak wants the UK to continue providing clearing services, but he may get a cold shoulder from Brussels. Resolving the Northern Irish protocol has proved hard enough to resolve. 

In the US, economic data remains upbeat – ADP's private-sector jobs report beat estimates with 692,000, and Thursday's focus is on the ISM Manufacturing PMI. Economists expect another month of quick growth in the industrial sector. Only a potential drop in the Prices Paid component could dent the dollar's dominance. 

See ISM Manufacturing Preview: Expansion to continue but how severe is the labor shortage?

Both figures serve as clues toward Friday's critical Nonfarm Payrolls report. Will this jobs report meet high expectations? The last two publications failed to meet estimates and another disappointment could hit the dollar. However, that may wait.

The greenback has been able to withstand end-of-quarter flows without any downside correction on Wednesday. That implies another day of strength on Thursday. 

More 

• NFP Preview: Four reasons why June's jobs report could be a dollar downer
• US June Nonfarm Payrolls Preview: Analyzing major pairs' reaction to NFP surprises

All in all, cable seems to be under the cosh and could further decline. 

GBP/USD Technical Analysis

Pound/dollar has dipped under the 1.38 level, as the four-hour chart shows – and it has also dipped below critical support at 1.3785, which is June's low and was also approached earlier in the spring. The break is yet to be confirmed., but the downside momentum remains robust. Also, the Relative Strength Index (RSI) is well above 30, thus outside oversold conditions. Moreover, GBP/USD is trading below the 50, 100 and 200 simple moving averages. 

Below 1.3785, the next lines to watch are 1.3750, 1.3720 and 1.3670. The last one was a stubborn cushion back in April. 

Some resistance awaits at 1.3830, a support line from April, followed by 1.3870, the weekly high. Further above, 1.3940 awaits sterling.