GBP/USD Forecast: Pound Sterling faces near-term consolidation

GBP/USD has gone into a consolidation phase near 1.2300.
US Dollar could hold its ground if markets turn cautious.
Pound Sterling continues to trade above key support levels.

Eren Sengezer FXStreet

GBP/USD has lost its bullish momentum after having touched its highest level in over five months at 1.2345 during the European trading hours on Monday. The pair's near-term technical outlook suggests that the bullish bias stays intact but the Pound Sterling could have a hard time gathering strength if the market mood sours during the American trading hours.

With several cities in China deciding to ease coronavirus curbs over the weekend, risk flows dominated the financial markets at the beginning of the week and the US Dollar struggled to find demand. Nevertheless, US stock index futures are down between 0.2% and 0.3% during the European trading hours, suggesting that investors could adopt a cautious stance if Wall Street's main indexes start the week in negative territory.

There won't be any high-impact macroeconomic data releases from the UK and the US Dollar's market valuation is likely to continue to drive the pair's action.

The US economic docket will feature the ISM's Services PMI report on Monday. The inflation component of the survey, the Prices Paid Index, is forecast to rise to 73.6 in November from 70.7 in October. If the report shows that input price inflation in the service sector continued to rise at an accelerating pace, the US Dollar could stay resilient against its rivals and weigh on GBP/USD. The headline PMI is expected to edge lower to 53.1 from 54.4. A reading below 50 is likely to trigger a fresh US Dollar selloff and provide a boost to the pair.

GBP/USD Technical Analysis

GBP/USD continues to trade within the ascending regression channel coming from November 9 and the Relative Strength Index (RSI) indicator on the four-hour chart holds comfortably above 60, confirming the bullish bias.

On the upside, interim resistance seems to have formed at 1.2345/50 (daily high, upper limit of the ascending channel) ahead of 1.2400 (psychological level) and 1.2475 (static level, former support).

In case GBP/USD falls below 1.2240 (mid-point of the ascending channel), it could extend its correction toward 1.2200 (psychological level, 20-period Simple Moving Average (SMA)) and 1.2150 (200-day SMA, lower limit of the ascending channel).

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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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