GBP/USD Weekly Forecast: Nothing seems to stop GBP bears, 1.1933 appears at risk

• GBP/USD sees more pain ahead after losing roughly 250 pips on the week.
• Brexit and recession fears cloud BoE’s rate hike outlook, undermining the GBP.
• A retest of the 2022 low is likely as USD could hold higher ahead of Fed minutes, NFP.

The recent bearish consolidation recharged GBP sellers, who remained in force and smashed GBP/USD to two-week lows below 1.2000. Cable lost more than 200 pips over the week, snapping the previous week’s brief recovery. Markets now look forward to the FOMC June meeting’s minutes and the US Nonfarm Payrolls for a fresh direction in the major.

GBP/USD resumed the broader downtrend

GBP/USD broke its consolidative mode to the downside after running into strong offers once again near 1.2300, as risk appetite vapored out and the US dollar bulls quickly jumped back into the game after a week of correction. Strong US Durable Goods and Pending Home Sales data added to the dollar gains while looming Brexit concerns kept the pound pressured.

As expected, the Northern Ireland protocol bill passed its first hurdle, with MPs voting 295 to 221 in favor despite heavy criticism from some Conservative backbenchers, including former Prime Minister Theresa May. But GBP bulls failed to capitalize, as the revival of recession fears overwhelmed them. King dollar remained the go-to asset amid broad risk-aversion. US CB Consumer Confidence headline and inflation sub-component, both helped to boost the dollar and push down GBP/USD to test 1.2100.

The pair cracked the latter after the Fed-BoE policy imbalance widened following Fed Chair Jerome Powell’s comments in Sintra where he stated that he remained committed to fighting inflation and moving on the policy ‘expeditiously’. On the other hand, BoE Governor Andrew Bailey sounded more cautious on the bank’s rate hike approach. Bailey said that they were being hit by a "very large income shock,” which spelled trouble for pound optimists.

Meanwhile, to support the ailing economy, the UK government considered easing the Value Added Tax (VAT). Prime Minister Boris Johnson's chief of staff Steve Barclay suggested reducing the 20% headline rate, according to The Times, adding a temporary cut would reduce the tax bill for millions. On the Brexit side, Irish deputy PM Leo Varadkar accused Number 10 of "siding" with unionists in seeking to scrap parts of the deal agreed in 2019, per BBC News. Investors also weighed the biggest current account deficit on record for the UK economy as the GDP rate was confirmed at 0.8% QoQ in the first quarter of 2022.  

Ahead of the weekend, the data from the US showed that the ISM Manufacturing PMI dropped to 53 in June from 56.1 in May. This print fell short of the market expectation of 54.9. The Prices Paid component of the survey declined to 78.5 from 82.2. Safe-haven flows continued to dominate the markets after this report and the dollar preserved its strength, not allowing GBP/USD to stage a recovery.

Week ahead: Fed minutes and NFP in spotlight

Cable traders will look forward to a holiday-shortened light week, with US traders out of the ring on Monday due to Independence Day. Attention turns towards Tuesday, therefore, when UK final Services PMI will be released and the BOE Financial Stability Report, which will be published alongside the FPC meeting minutes. Markets will closely follow Bailey’s press conference for any policy hints. From the US, Factory Orders will be the only relevant economic data to be reported.

Ahead of the critical FOMC minutes on Wednesday, traders will look forward to the BoE’s Chief Economist Huw Pill’s speech for fresh trading opportunities in the pound. The US ISM Services PMI as well as the JOLTS job openings data will also drop in mid-week.

US data flow will dominate the week, especially regarding the labor market, starting with the US ADP jobs data on Thursday, and then the big kahuna, the monthly US NFP report on Friday. Within that, it will be the hourly earnings and unemployment rate components that will be of most interest. Apart from the data, speeches from the Fed policymakers, risk sentiment and Brexit concerns will also continue to play out. 

GBP/USD: Technical analysis

In case GBP/USD confirms 1.2000 (static level, psychological level) as resistance, it is likely to test the 26-month low it set at 1.1933 earlier in the month. With a daily close below that level, further losses toward 1.1800 (psychological level) and 1.1760 (static level from March 2020) could be witnessed.

On the upside, 1.2100 (psychological level) aligns as initial resistance before 1.2200 (psychological level, static level) and 1.2270 (20-day SMA).

In the meantime, the pair is yet to turn technically oversold with the Relative Strength Index (RSI) indicator on the daily chart holding above 30. Confirming the near-term bearish outlook, the descending trend line coming from late April stays intact. 

GBP/USD: Sentiment poll

Despite this week's bearish action, the FXStreet Forecast Poll shows that half of the polled experts see GBP/USD staging a rebound next week. The one-month outlook remains overwhelmingly bullish with the average target sitting at 1.2286.