GBP/USD Forecast: Pound Sterling could weaken further amid risk aversion

GBP/USD trades in a tight channel below 1.2800 on Wednesday.
UK's FTSE 100 Index is down more than 1.5%, US stock futures trade deep in the red.
ADP Employment Change data will be featured in the US economic docket.

Eren Sengezer FXStreet

GBP/USD dropped to its lowest level since July 7 at 1.2740 on Tuesday but managed to stage a rebound in the early Asian session on Wednesday. The pair, however, failed to stabilize above 1.2800 and was last seen trading in a narrow range below that level.

The risk-averse market atmosphere doesn't allow Pound Sterling to find demand. The UK's FTSE 100 Index is down more than 1.5% and US stock index futures are losing between 0.75% and 1.3% in the European session.

If Wall Street's main indexes open deep in negative territory and continue to slide, the USD could start outperforming its risk-sensitive rivals as a safer alternative. The decision by Global rating agency Fitch to downgrade the US government's credit rating to AA+ from AAA due to anticipated fiscal deterioration over the next three years and a high and growing general government debt burden seems to be weighing on market mood midweek.

Automatic Data Processing (ADP) will release the private sector employment data for July. Following June's impressive increase of 497,000, Employment Change is forecast to come in at 189,000. A weaker-than-expected print could highlight looser conditions in the labor market and hurt the USD with the immediate reaction. Nevertheless, GBP/USD is likely to stay on the back foot unless risk flows return to markets.

GBP/USD Technical Analysis

Strong static resistance for GBP/USD seems to have formed at 1.2740. In case 1.2800 (Fibonacci 61.8% retracement of the latest uptrend) stays intact as resistance, the pair could test 1.2740 again and sellers could target 1.2700 (psychological level, static level) afterward.

On the upside, 1.2800 and 1.2830 (200-period Simple Moving Average) align as strong resistances in the near term. A 4-hour close above the latter could attract buyers and open the door for an extended rebound toward 1.2870 (Fibonacci 50% retracement).

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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