GBP/USD Forecast: Overbought? Resistance eyed ahead of all-important Non-Farm Payrolls

GBP/USD is trading on high ground amid an upbeat market mood, despite worrying UK events.
All eyes are on US Non-Farm Payrolls, expected to show an ongoing recovery.
Thursday's four-hour chart is pointing to overbought conditions and strong resistance above.

Yohay Elam FXStreet

Cool Britania – GBP/USD has broken above the downtrend resistance line and surged to new highs – buoyed by hopes of a coronavirus vaccine. Pfizer and BioNTech reported progress in initial tests, pushing stocks higher. That put pressure on the safe-haven dollar, and cable's break above that persistent line propelled the pound to higher ground.

Another effort to defeat COVID-19 is underway at Oxford University and is at a more stage – at least according to Dr. Anthony Fauci, America's leading epidemiologist.

That seemed enough to outweigh all of sterling's issues. Brexit talks have yet to yield a breakthrough, Leicester is entering lockdown, and investors were unimpressed by the government's new stimulus plan. Prime Minister Boris Johnson's "Build, build, build" promise seemed to recycle old promises and more details are awaited from Rishi Sunak, the Chancellor of the Exchequer.

The focus now shifts to the all-important US Non-Farm Payrolls. Economists expect an increase of around three million jobs in June – extending the recovery from April's approximate 2.5 million bounce. The world's largest economy lost around 20 million positions back in April.

Indicators leading to the publication were somewhat soft, with ADP reporting a gain of 2.369 million private-sector positions, below estimates. America's Unemployment Rate has likely dropped from 13.3% to 12.3%. It is essential to note that the rapid pace of events makes calculations difficult, potentially resulting in a significant surprise to either direction.

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The Non-Farm Payrolls surveys were taken early in June, thus unable to capture the surge in coronavirus cases seen later in the month – and the consequent drop in economic activity. People decreased consumption before new restrictions were slapped or reopening was halted. New York City – where COVID-19 is under control – pushed back plans to allow indoor dining.

The US hit a record number of daily infections on Wednesday and Texas fatalities reached the highest in six weeks. Stocks remain upbeat, but that may change later on.

Overall, a satisfactory NFP should keep markets happy and support GBP/USD – yet it may be nearing its limits.

GBP/USD Technical Analysis

The Relative Strength Index on the four-hour chart is around 70 – entering oversold conditions and implying a downside correction. On the other hand, GBP/USD is trading above the 50, 100, and 200 Simple Moving Averages after the recent surge, and benefits from upside momentum. Moreover, cable has decisively broken above the stubborn downtrend resistance line.

Strong resistance awaits at 1.2550, a high point in late June and that could test overbought conditions. Further above, the next line to watch is 1.2620, followed by 1.2680.

Some support awaits at the round 1.25 level, followed by 1.2455, which provided support early in the day. The next levels are the former separator of ranges at 1.24 and 1.2340.

Author

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

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