GBP/USD Forecast: Pound to weaken further if buyers fail to defend 1.3500

British pound has lost its bullish momentum following Friday's upsurge.
UK PM Boris Johnson is expected to deliver an update on coronavirus-related restriction measures.
Ascending trend line forms key near-term support at 1.3500.

Eren Sengezer FXStreet

GBP/USD has registered impressive gains in the last two weeks of the year but bulls seem to have lost interest on the first trading day of 2022. The pair has already tested 1.3500 once, and the bearish pressure could increase in case buyers stop defending that level.

The number of confirmed coronavirus cases in the UK continues to rise at an unprecedented pace. Although the British government refrained from imposing new restrictions before the New Year, widespread staff absences are weighing on economic activity, especially in the service sector.

Later in the day, British Prime Minister Boris Johnson is expected to deliver an update on restrictions after assessing the latest Omicron data. In case investors see the negative impact of the Omicron variant on the British economy as a factor that would cause the Bank of England to pause its policy tightening, the GBP could find it difficult to attract buyers.

In the meantime, the dollar is holding its ground against its major rivals at the beginning of the week and limiting GBP/USD's upside. December Construction Spending will be featured in the US economic docket alongside IHS Markit's December (final) Manufacturing PMI. These figures are unlikely to trigger a noticeable market reaction and the US Dollar Index, which lost 1% after the Christmas break, could extend its technical correction ahead of this week's key events.

GBP/USD Technical Analysis

So far, GBP/USD has managed to stay afloat the ascending trend line coming from December 21 at 1.3500. In case a four-hour candle closes below that level, additional losses toward the next static support at 1.3460 could be witnessed before 1.3440 (50-period SMA).

In the meantime, the Relative Strength Index (RSI) indicator on the same chart is holding above 50, suggesting that sellers remain hesitant for the time being.

On the upside, 1.3550 (December 31 high) aligns as first resistance ahead of 1.3600 (psychological level) and 1.3635 (static 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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