GBP/USD Forecast: Sellers to retain control below 1.2500

GBP/USD declined to a fresh multi-week low below 1.2450 on Wednesday.
1.2500 aligns as key resistance for the pair.
US Dollar is likely to preserve its strength in case cautious market mood stays unchanged.

Eren Sengezer FXStreet

GBP/USD has extended its slide mid-week and touched its lowest level since late April, near 1.2420. The pair's bearish outlook stays intact in the short term and sellers could continue to dominate the action as long as 1.2500 holds as resistance.

The US Dollar benefited from risk aversion on Tuesday and forced GBP/USD to stay on the back foot. Although latest headlines surrounding the US debt limit negotiations suggest that there could be a deal to raise the debt ceiling by the end of this week, markets remain cautious on Wednesday.

In a recently published report, The Wall Street Journal said that House Democrats were planning to start collecting signatures for a "discharge petition to raise the debt ceiling."

The UK's FTSE 100 Index trades flat in the European session, while US stock index futures trade mixed.

Meanwhile, UK Finance Minister Jeremy Hunt said Wednesday that the government fully supports the Bank of England's policy decision, noting that there is nothing that can bring inflation down automatically. These comments, however, failed to help Pound Sterling find demand.

In the second half of the day, Housing Starts and Building Permits data from the US will be looked upon for fresh impetus. In case these data remind markets of the negative impact of the Federal Reserve's tight policy on the real estate sector, USD could lose strength and allow GBP/USD to stage a rebound.

It is also worth nothing that the USD's valuation could continue to be driven by the risk mood in the American session. Another leg lower in Wall Street's main indexes should support the USD and vice versa.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the four-hour chart declined below 30 early Wednesday, suggesting that GBP/USD could look to stage a technical correction before extended its downtrend. On the downside, 1.2400 (psychological level, static level) aligns as next support ahead of 1.2360 (static level) and 1.2325 (Fibonacci 38.2% retracement of the latest uptrend).

GBP/USD faces first resistance at 1.2450 (Fibonacci 23.6% retracement) before 1.2500 (psychological level, static level, 200-period Simple Moving Average (SMA)) and 1.2530 (100-period SMA).

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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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