GBP/USD Forecast: Souring mood could cap Pound Sterling's upside

GBP/USD trades in a narrow band near 1.2700 to start the week.
Pound Sterling could face stiff resistance at 1.2750.
A bearish opening in Wall Street could weigh on the pair.

Eren Sengezer FXStreet

GBP/USD closed the previous week virtually unchanged on the back of a decisive recovery seen in the late American session on Friday. The pair holds steady at around 1.2700 but the negative shift seen in risk sentiment could make it difficult for Pound Sterling to find demand.

The US Dollar (USD) gathered strength against its major rivals with the knee-jerk reaction to the December jobs report but failed to preserve its bullish momentum. The disappointing ISM Services PMI and the underlying details of the labor market data didn't allow markets to scale back bets on a Federal Reserve policy pivot in March.

Nonfarm Payrolls in the US rose by 216,000 in December, surpassing the market expectation for an increase of 170,000. The US Bureau of Labor Statistics, however, announced downward revisions to November and October prints. In the meantime, the Labor Force Participation Rate declined to 62.5% in December from 62.8%, while the Unemployment Rate held steady at 3.7%. Finally, the ISM Services PMI dropped to 50.6 in December from 52.7 in November, pointing to a loss of momentum in the service sector's economic activity.

In the European morning, US stock index futures are down between 0.1% and 0.4%. In the absence of high-impact macroeconomic data releases, the risk perception could drive the USD's performance in the second half of the day.

A negative opening in Wall Street's main indexes, followed by an extended slide, could provide a boost to the USD and weigh on GBP/USD. The Consumer Price Index (CPI) data from the US could trigger the next big action on Thursday.

GBP/USD Technical Analysis

GBP/USD holds above 1.2700, where the 100-period Simple Moving Average (SMA) on the 4-hour chart is located. The pair, however, remains below the lower limit of the ascending regression channel and the Relative Strength Index (RSI) indicator stays slightly above 50, failing to provide a directional clue.

On the upside, 1.2750 (lower limit of the ascending channel) aligns as important resistance. In case GBP/USD returns within the ascending channel by flipping that level into support, it could target 1.2800 (psychological level, static level) and 1.2820 (static level).

A 4-hour close below 1.2700 could attract technical sellers and open the door for an extended decline toward 1.2650 (Fibonacci 23.6% retracement of the latest uptrend, 200-period SMA) and 1.2600 (psychological level, static level).

Premium

You have reached your limit of 3 free articles for this month.

Start your subscription and get access to all our original articles.

Subscribe to Premium Sign In

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.

EUR/USD extends its optimism past 1.1900

EUR/USD retains a firm underlying bid, surpassing the 1.1900 mark as the NA session draws to a close on Monday. The pair’s persistent uptrend comes as the US Dollar remains on the defensive, with traders staying cautious ahead of upcoming US NFP prints and CPI data.

GBP/USD hits three-day peaks, targets 1.3700

GBP/USD is clocking decent gains at the start of the week, advancing to three-day highs near 1.3670 and building on Friday’s solid performance. The better tone in the British Pound comes on the back of the intense sekk-off in the Greenback and despite re-emerging signs of a fresh government crisis in the UK.

Gold picks up pace, retargets $5,100

Gold gathers fresh steam, challenging daily highs en route to the $5,100 mark per troy ounce in the latter part of Monday’s session. The precious metal finds support from fresh signs of continued buying by the PBoC, while expectations that the Fed could lean more dovish also collaborate with the uptick.

XRP struggles around $1.40 despite institutional inflows

Ripple (XRP) is extending its intraday decline to around $1.40 at the time of writing on Monday amid growing pressure from the retail market and risk-off sentiment that continues to keep investors on the sidelines.

Japanese PM Takaichi nabs unprecedented victory – US data eyed this week

I do not think I would be exaggerating to say that Japanese Prime Minister Sanae Takaichi’s snap general election gamble paid off over the weekend – and then some. This secured the Liberal Democratic Party (LDP) an unprecedented mandate just three months into her tenure.