GBP/USD Weekly Forecast: Technical setup favors Pound Sterling sellers

• GBP/USD bounced off two-month lows as the US Dollar snapped its six-week winning streak.
• Fed and BoE commentaries will be eyed amid a data-quiet and holiday-shortened week.
• GBP/USD needs acceptance above 50-day SMA at 1.2780 to confirm a bullish reversal.

The Pound Sterling bulls jumped back into the game against the United States Dollar (USD), helping GBP/USD stage a solid comeback from two-month troughs. Traders will pay close attention to the technical indicators amid a data-scarce calendar on both sides of the Atlantic in the holiday-shortened week ahead.

GBP/USD: What happened last week?

The GBP/USD pair reversed half the previous week’s decline and rebounded on the back of a correction in the US Dollar from two-month highs against its six major rivals. The US Dollar kicked off the week on a firm footing but failed to withstand bearish pressures emanating from increased bets of a US Federal Reserve rate hike pause in the final quarter of this year. Markets also began pricing rate cuts next year, which could amount to more than 100 basis points, after a run of the latest data disappointment.

At the start of the week, the US Dollar consolidated at 12-week highs reached on Friday after the Greenback capitalized on US Federal Reserve Chairman Jerome Powell’s hawkish remarks at the Jackson Hole Symposium. Backed by the United States’ economic resilience, Jerome Powell strengthened the central bank’s narrative of higher interest rates for a longer period of time. The US Dollar firmness kept GBP/USD undermined near multi-week troughs below 1.2600.

The tide, however, turned in favor of Pound Sterling for the next three days, starting Tuesday, as the US Dollar got sold into the renewed dovish Federal Reserve interest rate expectations after a slew of disappointing US economic data releases. On Tuesday, US JOLTS Job Openings dropped to the lowest level in over two years to 8.827M in July, compared with an increase of 9.165M reported in June. Meanwhile, US Consumer Confidence fell sharply to 106.1 in August after two straight monthly increases.

ADP on Wednesday reported that the US private sector added 177,000 jobs in August, well below the revised total of 371,000 added in July. US Q2 GDP growth was revised down to a 2.1% annual rate from 2.4% seen in the preliminary reading. The Fed's preferred measure of inflation showed on Thursday prices rose 4.2% YoY last month, in line with expectations. The number of Americans applying for jobless benefits last week fell by 4,000 to 228,000 the week ending August 26. However, the US Personal Income rose less than expected in the reported month.

Atlanta Fed President Raphael Bostic’s dovish commentary also weighed on the Greenback. US policy is restrictive enough to bring inflation to 2% over a reasonable time frame, Bostic said in his prepared remarks delivered early Thursday.  

In the latter part of the week, the US Dollar managed to find fresh safe-haven demand as China’s economic slowdown concerns regained momentum after the nation’s official Manufacturing PMI remained in contraction for the fifth straight month. Therefore, the pair retreated from a five-day high of 1.2747, with the downside accentuated by the cautious comments from the Bank of England (BoE) Chief Economist, Huw Pill. Pill said "the key element is that we on the MPC need to see the job through and ensure a lasting and sustainable return of inflation to the 2% target.” 

GBP/USD traded on the back foot on Friday as the US Dollar found its footing heading into the key US Nonfarm Payrolls (NFP) data release. The report showed the country added 187K new jobs in August, while the Unemployment Rate surged to 3.8% from 3.5% in the previous month. Furthermore, wage pressures eased, as Average Hourly Earnings rose 4.3% YoY, while the Participation Rate increased to 62.8%. Overall, the NFP report boosted the sentiment as it confirmed the Federal Reserve (Fed) does not need to hike rates in September and probably neither in November. Financial markets reacted positively to the news, with the US Dollar easing against its major rivals. However, the slide lacked follow-through and major pairs stand not far from pre-release levels.

Week ahead: Fed and BoE-speak in focus

Following an action-packed week, GBP/USD traders will take a breather in a relatively quiet week ahead.

The United States markets are closed on Monday in observance of Labor Day, and the economic docket from the United Kingdom is data-empty, making it a quiet start to the week. However, thin trading conditions could infuse volatility across the FX board.

Tuesday will see the final Services PMI from the UK, followed by the US Factory Orders, which will likely have little impact on the GBP/USD. Earlier that day, China’s Caixin Services PMI will be released in the Asian session, which will potentially shape up risk trends for the rest of the day.

Wednesday’s key focus will be on the top-tier ISM Services PMI from the US in the absence of any data releases from Britain.

China will release its Trade Balance report on Thursday, which could throw fresh hints on the health of the world’s second-largest economy, affecting risk trades and the US Dollar valuations.

The main event risk of the day, however, will be the Bank of England (BoE) Monetary Policy Report Hearings. BOE Governor Andrew Bailey and several Monetary Policy Committee (MPC) members will testify on inflation and the economic outlook before Parliament's Treasury Select Committee (TSC), triggering volatility in the Pound Sterling. Investors will closely scrutinize the comments from the BoE policymakers for fresh cues on the central bank’s September policy decision.

From the US docket, the weekly Jobless Claims will entertain traders in an otherwise quiet American session on Thursday. Friday has nothing of note to report, in terms of economic data. GBP/USD traders will, therefore, use the quiet day to reposition ahead of US Consumer Price Index data due in the next week.

On the whole, Fed policymakers could keep traders motivated during the data-scarce week.

GBP/USD: Technical outlook

GBP/USD buyers defied bearish pressures and jumped back into the previous week’s range, defined by the 50-day Simple Moving Average (SMA) at 1.2780 on the upside,  while the 100-day SMA at 1.2650 guarded the downside.
Despite the rebound, Pound Sterling sellers are likely to regain control in the upcoming week, as the 14-day Relative Strength Index (RSI) has fallen back under the 50 level.

A sustained move below the 100-day SMA at 1.2650 will revive the GBP/USD downtrend. A fresh sell-off toward the two-month low of 1.2548 will be in the offing thereafter.

The next relevant downside target is aligned at the 200-day SMA at 1.2416.

On the flip side, acceptance above the 50-day SMA resistance at 1.2780 is critical to sustaining the recovery momentum from two-month troughs.  

Further up, Pound Sterling will flex their muscles to test the 1.2850 static resistance before initiating a fresh upside journey toward the July 27 high of 1.2995. 

GBP/USD: Forecast poll

The FXStreet Forecast Poll suggest GBP/USD will slowly but steadily advance from the current levels as bulls dominate the three time frames under study. At the same time, the number of polled experts betting for a slide stands at just 20% in the weekly view, decreasing in time to 12% in the quarterly perspective. On average, GBP/USD is seen on average at 1.2657 in the nearest view and at 1.2816 in three months.

In the Overview chart,  the weekly and monthly moving averages offer modest bullish slopes, although in both cases, the pair is seen between 1.2500 and 1.3000. The quarterly moving average maintains a modest bearish slope amid increased bets sub-1.2500, although higher highs beyond 1.3000 have also appeared. The wider perspective seems to be reflecting uncertainty rather than a clear path.