GBP/USD Forecast: Pound Sterling closes in on key 1.2800 support

GBP/USD turned south in the European session on Monday and dropped to its lowest level in two weeks below 1.2810. The pair's technical outlook points to a bearish bias as investors await S&P Global PMI surveys for the US.

S&P Global/CIPS Manufacturing PMI for the UK dropped to 45 in July's flash estimate from 46.5 in June. Additionally, the Services PMI declined to 51.5 from 53.7, unveiling a loss of momentum in the services sector's business activity. 

Assessing the survey's findings, “the UK economy has come close to stalling in July which, combined with gloomy forward-looking indicators, reignites recession worries," said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence.

Pound Sterling has been struggling to find demand after the data from the UK showed last week a noticeable softening of inflation in June. Disappointing PMIs keep hawkish Bank of England (BoE) bets at bay and don't allow GBP/USD to gain traction early Monday.

In the second half of the day, PMI surveys from the US are forecast to show an ongoing contraction in the manufacturing sector and a healthy expansion in the service sector. Unless PMI data come in much worse than anticipated, GBP/USD could have a difficult time staging a decisive rebound.

GBP/USD Technical Analysis

The Relative Strength (RSI) indicator on the four-hour chart is yet to cross below 30, suggesting that GBP/USD has more room on the downside before turning technically oversold. 1.2800 (Fibonacci 61.8% retracement of the latest uptrend) aligns as first support before 1.2775 (200-period SMA) and 1.2750 (static level).

Looking north, 1.2870, (Fibonacci 50% retracement, 20-period Simple Moving Average (SMA), 50-period SMA) before 1.2900 (psychological level, static level) and 1.2930 (Fibonacci 38.2% retracement).