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GBP/USD Forecast: Next line of defense aligns at 1.1825

  • GBP/USD has extended its slide after having dropped below 1.1900.
  • The pair faces static support level at 1.1825.
  • Wall Street's main indexes remain on track to open deep in negative territory.

Pressured by the broad-based dollar strength, GBP/USD has suffered heavy losses and dropped to its lowest level in a month below 1.1900. The pair stays on the backfoot on Friday and additional losses could be witnessed in case safe-haven flows continue to dominate the financial markets in the second half of the day. It's worth noting, however, that the near-term technical outlook suggests that the pair could make a correction before the next leg lower.

The data from the US showed on Thursday that the Philadelphia Fed Manufacturing Index improved significantly in August and the weekly Initial Jobless Claims declined to 250,0000, compared to the market expectation of 265,000. On a negative note, Existing Home Sales fell by 5.9% in July. The dollar struggled to make a decisive move in either direction with the initial reaction but hawkish comments from officials triggered an impressive rally in the US Dollar Index (DXY).

St. Louis Fed President James Bullard said that he was in favor of the Fed continuing to frontload rate hikes and added that he would prefer a 75 basis points increase at the September policy meeting. Additionally, "the markets have a lack of understanding but consumers understand that rates won't go down right after they go up," San Francisco Fed President Mary Daly told CNN. 

There won't be any high-tier data releases from the US ahead of the weekend and the risk perception could impact the dollar's valuation. As of writing, US stock index futures were down between 0.6% and 0.9%, suggesting that safe-haven flows could continue to support the dollar in the second half of the day.

GBP/USD Technical Analysis

The pair faces static support at 1.1825 ahead of 1.1800 (psychological level) and 1.1760 (July 14 low). On the four-hour chart, the Relative Strength Index (RSI) indicator dropped below 30, suggesting that the pair could stage a correction before extending its slide.

In case GBP/USD recovers, resistances are located at 1.1900 (psychological level), 1.1940 (static level) and 1.2000 (psychological level, Fibonacci 61.8% retracement of the latest uptrend).

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Author

Eren Sengezer

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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