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).

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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