GBP to USD Forecasts: Bears Target Sub-$1.22 on Fed Chair Powell

It is a relatively quiet day ahead for the GBP/USD. Early in the UK session, house price figures will be in focus. A larger-than-expected decline would impact the GBP/USD pair following the latest Bank of England mortgage lending numbers for December.

Later in the morning, finalized manufacturing PMI numbers for January will also be in focus. Revisions from the prelim survey would provide the Pound with direction.

Away from the economic calendar, UK politics and Brexit remain focal points along with March Budget chatter.

While investors consider the policy outlook, no Monetary Policy Committee Members are speaking today, leaving investors to monitor chatter with the media.

GBP/USD Price Action

At the time of writing, the Pound was down 0.12% to $1.23039. A mixed start to the day saw the GBP/USD rise to an early high of $1.23238 before falling to a low of $1.23039.

Technical Indicators

The Pound needs to move through the $1.2324 pivot to target the First Major Resistance Level (R1) at $1.2365 and the Tuesday high of $1.23709. A return to $1.2350 would signal an extended breakout session. However, the Pound would need risk-on sentiment to support a pre-Fed breakout.

In the event of an extended rally, the GBP to USD would likely test the Second Major Resistance Level (R2) at $1.2411. The Third Major Resistance Level sits at $1.2498.

Failure to move through the pivot would leave the First Major Support Level (S1) at $1.2278 in play. However, barring a Fed-fueled sell-off, the GBP/USD should avoid sub-$1.22. The second Major Support Level (S2) at $1.2238 should limit the downside.

The Third Major Support Level (S3) sits at $1.2151.

Looking at the EMAs and the 4-hourly chart, the EMAs send a more bearish signal. The GBP/USD sits above the 100-day EMA, currently at $1.22941. The 50-day EMA narrowed to the 100-day EMA, while the 100-day EMA flattened on the 200-day EMA, delivering mixed signals.

A move through the 50-day EMA ($1.23430) would support a breakout from R1 ($1.2365) to target R2 ($1.2411) and $1.2450. However, a fall through the 100-day EMA ($1.22941) would bring S1 $1.2278 and sub-$1.2250 into view. A move through the 50-day EMA would send a bullish signal.

The US Session

It is a busy day on the US economic calendar. ADP nonfarm employment change will draw plenty of interest ahead of ISM Manufacturing PMI and JOLTs job opening numbers. We expect the labor market numbers to have the most influence ahead of the all-important Fed interest rate decision and Fed Chair Powell press conference.

A 25-basis point Fed rate hike would leave Fed Chair Powell to decide the fate of the dollar and market risk sentiment. A hawkish policy outlook, citing elevated inflation, tight labor market conditions, and a resilient US economy, could spook the markets.

For the GBP/USD, softer UK inflation expectations  and a hawkish Fed Chair Powell press conference would weigh heavily.