GBP/USD Forecast: Sterling well anchored at the base formed by 50% Fibonacci retracement

 

  • GBP/USD is dwelling near support zone of 1.3460-1.3500 formed by 50% Fibonacci retracement line of a great post-Brexit fall.
  • The mix of the UK economic fundamentals and political uncertainty weighs on Sterling.
  • The rise of the US benchmark Treasury yields supports US Dollar.

The GBP/USD is trading little changed at around 1.3510 against the US Dollar that is massively supported by rising Treasury yields. The US benchmark 10-year Treasury yields rose to 3.13% overnight on Friday, the highest level since 2011.

The GBP/USD formed a strong support base at around 1.3480 level represented by 50% Fibonacci retracement of a post-Brexit slide from 1.5040 to 1.1940 that is holding the pair hovering around 1.3500 for last 9 trading days. 

While markets saw the UK labor market report initially GBP/USD supportive earlier this week, the price action following Tuesday’s employment data release took the swing lower with the US Treasuries being sold off pushing the yields well above 3.00%.

The April labor market report in the UK saw the unemployment rate and the headline wage growth including as well as excluding bonuses meeting the market expectations with the overall tone of the report distorted by strongly rising claimant count that increased 31.2K against 7.8K expected in April coupled with March claimant count being revised upwards from 11.6K to 15.7K. Rising claimant count is a negative signal for the future of the UK labor market as the number of the unemployment benefits seekers increased adding to the army of 1.42 million people without the job in the UK.

Adding to the mixed picture on GBP/USD is the political development in the UK with reports indicating that the UK government is not unified in a question of remaining in the customs union with EU after Brexit. While the upper chamber of British parliament want Theresa May’s government to remain part of the customs union, the Conservative government opposes it. 

Technically, the GBP/USD is on the downside with the Momentum, the Relative Strength Index, and Slow Stochastics all pointing upwards on the daily chart. Momentum fell to the lowest level since post-Brexit and with the spot rate of GBP/USD little changed around 1.3480 representing 50% Fibonacci retracement of the slide from 1.5040 to 1.1940, now Momentum turned to the upside similar to the Relative Strength Index. The GBP/USD is still facing strong support in 1.3460-1.3500 zone with a close below that level needed to target lower levels of 1.3380 representing December 2017 low and 61.8% Fibonacci retracement of the uptrend from 1.2770 to 1.4377.

GBP/USD daily chart


 

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