GBP/USD Forecast: Pound Sterling needs to reclaim 1.2200 to attract bulls


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  • GBP/USD has gone into consolidation after a two-day downward correction.
  • The pair could stretch higher if it manages to reclaim 1.2200.
  • US Dollar is likely to lose interest in case the market mood improves.

GBP/USD has gone into a consolidation phase at around 1.2150 mid-week after having registered modest losses on Monday and Tuesday. In case the pair rises above 1.2200 and starts using that level as support, additional buyers could come into play and open the door for another leg higher.

The risk-averse market atmosphere helped the US Dollar outperform its rivals on Tuesday and caused GBP/USD to continue to push lower. Early Wednesday, US stock index futures are little changed on the day and the UK's FTSE 100 Index is moving sideways near Tuesday's closing level, pointing to a neutral market mood.

China announced new easing steps on Wednesday. Asymptomatic and mildly-symptomatic positive coronavirus cases will be allowed to quarantine at home and mass PCR testing, outside hospitals, using homes and schools, will be abandoned. This development, however, failed to provide a boost to risk mood as the data from China earlier in the day showed that the trade surplus declined at a faster pace than expected in November.

The US economic docket will feature the Unit Labor Costs data for the third quarter, which is forecast to decline to 3.2% from 3.5% in the second quarter. A weaker-than-expected print is likely to hurt the US Dollar with the immediate reaction and vice versa.

Nevertheless, market participants will keep a close eye on risk perception and unless there is a noticeable recovery in Wall Street's main indexes, GBP/USD could have a hard time gathering bullish momentum.

GBP/USD Technical Analysis

GBP/USD broke below the ascending regression channel coming from November 10 and extended its decline toward 1.2100. Buyers didn't have a difficult time defending that level and helped the pair advance to the 1.2150 area during the European trading hours.

Once GBP/USD returns with the ascending channel above 1.2200, additional gains toward 1.2250 (mid-point of the regression channel, 20-period SMA) and 1.2300 (psychological level) could be witnessed.

On the downside, 1.2100 (Fibonacci 23.6% retracement of the latest downtrend) aligns as intra-day support ahead of 1.2030 (100-period Simple Moving Average (SMA) on the four-hour chart) and 1.2000 (psychological level). 

It's worth noting that the 200-day SMA is currently located at 1.2130. A daily close below that level could be seen as a bearish development.

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