GBP/USD Forecast: Pound Sterling likely to decline further as 1.2800 support fails

GBP/USD dropped below 1.2800 for the first time in 18 days.
The technical outlook highlights a buildup of bearish momentum.
A risk rally in the American session could help the pair limit its losses.

Eren Sengezer FXStreet

GBP/USD suffered heavy losses and touched its lowest level in over two weeks below 1.2800 on Friday. The pair needs to rise above that level and start using it as support to discourage sellers.

The broad-based US Dollar strength caused GBP/USD to fall sharply as investors reassessed the Federal Reserve's policy outlook following the robust macroeconomic data releases in the US.

The US Real Gross Domestic Product (GDP) expanded at an annualized pace of 2.4% in the second quarter, much stronger than the market expectation of 1.8%. Additionally, weekly Initial Jobless Claims declined to 221,000 and Durable Goods Orders increased 4.7% on a monthly basis in June, surpassing analysts' estimate of a 1% rise by a wide margin.

Markets have turned reluctant to price in that the Fed reached its terminal rate with Wednesday's 25 basis points rate hike, helping the USD outperform its rivals ahead of the weekend.

Later in the day, the Personal Consumption Expenditures (PCE) Price Index data will be featured in the US economic docket alongside Personal Income and Personal Spending figures for June. In case these data confirm that consumer activity remained healthy in June, GBP/USD could find it difficult to stage a rebound.

Still, US stock index futures are up between 0.3% and 0.7% in the European session. A bullish opening in Wall Street followed by a risk rally could limit USD's gains and support GBP/USD in the second half of the day.

GBP/USD Technical Analysis

GBP/USD broke below 1.2800-1.2810 area, where the Fibonacci 61.8% retracement level of the latest uptrend and the 200-period Simple Moving Average align. Meanwhile, the Relative Strength Index (RSI) indicator on the 4-hour chart stays between 30 and 40, suggesting that the pair has more room on the downside before turning technically oversold.

On the downside, 1.2730 (static level) could be seen as the next bearish target ahead of 1.2700 (psychological level, static level) and 1.2650 (static level).

Looking north, a 4-hour close above 1.2800-1.2810 could attract buyers and open the door for a recovery toward 1.2870 (Fibonacci 50% retracement) and 1.2900 (50-period SMA, psychological level).

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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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