GBP to USD Forecasts: Bears to Target Sub-$1.18, a FTSE 100 Booster

It is a quiet day ahead for the GBP/USD. December house price and construction PMI numbers will be in focus. While the numbers tend to have a limited impact on the Pound, house price news has drawn more interest in recent weeks. Falling prices would likely erode consumer confidence and impact consumption.

Higher inflation and a lengthy economic recession could have a lasting impact on the UK housing market, with economists forecasting the worst market correction since the financial crisis. According to the Times, most economists warn of “near-double-digit declines” in 2023.

After Thursday’s return to sub-$1.19, the GBP/USD could experience another pullback. UK construction PMI numbers for December are also bearish for the Pound, with economists forecasting the PMI to fall from 50.4 to 49.6.

While a housing sector correction would pressure the Pound, the FTSE100 would benefit from a weaker Pound and upbeat US economic indicators. More than 80% of FTSE 100 listed company earnings come from overseas.

Following the holidays, no MPC members are due to speak today to give the markets a sense of the Bank’s views on the economic outlook, COVID-19, and monetary policy.

GBP/USD Price Action

At the time of writing, the Pound was down 0.01% to $1.19014.

Technical Indicators

The Pound needs to move through the $1.1951 pivot to target the First Major Resistance Level (R1) at $1.2030 and the Thursday high of $1.20785. A return to $1.20 would signal a bullish afternoon session. However, the Pound would need today’s US economic indicators to support a breakout session.

In the event of an extended rally, the GBP to USD would likely test resistance at $1.21 but fall short of the Second Major Resistance Level (R2) at $1.2157. The Third Major Resistance Level sits at $1.2362.

Failure to move through the pivot would leave the First Major Support Level (S1) at $1.1824 in play. However, barring a risk-off-fueled sell-off, the GBP/USD should avoid sub-$1.18 and the Second Major Support Level (S2) at $1.1746.

The Third Major Support Level (S3) sits at $1.1540.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bearish signal. The GBP/USD sits below the 200-day EMA, currently at $1.20212. The 50-day EMA converged on the 200-day EMA, with the 100-day EMA narrowing to the 200-day EMA, delivering bearish signals.

A bearish cross of the 50-day EMA through the 200-day EMA would bring S1 ($1.1824) and sub-$1.18 into view. However, a move through the 200-day EMA ($1.20212) would support a breakout from the 50-day EMA ($1.20301) and R1 ($1.2030).

The US Session

It is a big day ahead on the US economic calendar. The December jobs report will be the main report of the day. Expect plenty of market volatility, with the jobs report likely to define the Fed’s February policy move.

A better-than-expected increase in nonfarm payrolls and a steady or lower unemployment rate would send riskier assets and the GBP/USD into the red.

Later in the US session, ISM Non-Manufacturing PMI numbers will also be in focus. The headline and sub-components, including employment and non-manufacturing prices, will influence.

With a busy economic calendar, we expect increased market volatility. The markets have to work out the combined impact on Fed monetary policy. Investors should also look out for any FOMC member commentary.