GBP to USD Forecasts: Bears to Target Sub-$1.2050 on Divergence

It is a quiet day for the GBP/USD. House price figures for November will be in focus this morning. However, barring a sharp decline, the numbers should have a relatively muted impact on the Pound.

Economic data from China led the GBP/USD back from early highs, with trade data disappointing. In November, exports were down 8.7% year-over-year versus a 0.3% decline in October. Imports tumbled by 10.6% versus a 0.7% fall in November, signaling a low-demand environment.

However, China’s easing of COVID-19 lockdown measures softened the impact, with the reopening expected to drive demand and productivity.

With no UK economic indicators to influence, the Pound will remain in the hands of market risk sentiment throughout the session.

Downside risks linger, however. The divergence between the US and UK economic outlooks and inflation expectations remain headwinds for the Pound.

As uncertainty builds over this month’s central bank monetary policy moves, BoE chatter will move the dial. However, there are no Bank of England Monetary Policy Member speeches for the markets to consider. The lack of commentary will leave member chatter with the media to influence ahead of the US session.

GBP/USD Price Action

At the time of writing, the Pound was up 0.04% to $1.21348. A mixed morning saw the GBP/USD fall to an early low of $1.21211 before rising to a high of $1.21496.

Technical Indicators

The Pound needs to move through the $1.2176 pivot to target the First Major Resistance Level (R1) at $1.2224 and the Tuesday high of $1.22692. Risk-on sentiment and hawkish BoE chatter would support a bullish session.

In the case of an extended rally, the GBP/USD would likely test the Second Major Resistance Level at $1.2318. The Third Major Resistance Level (R3) sits at $1.2460.

Failure to move through the pivot would leave the First Major Support Level (S1) at $1.2082 in play. However, barring a risk-off-fueled sell-off, the GBP/USD should avoid sub-$1.20. The Second Major Support Level (S2) at $1.2033 should limit the downside.

The Third Major Support Level (S3) sits at $1.1891.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The GBP/USD sits above the 50-day EMA, currently at $1.21220. The 50-day EMA moved away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A hold above the 50-day EMA ($1.21220) would support a move through R1 ($1.2224) to target R2 ($1.2318). However, a GBP/USD fall through the 50-day EMA ($1.21220) would bring S1 (1.2082) into view. The 200-day EMA sits at $1.18178.

The US Session

It is a quiet day ahead, with finalized US nonfarm productivity and unit labor costs for the third quarter in focus. Economists forecast unit labor costs to rise by 3.1% in Q3 versus a prelim 3.5%. An upward revision would raise more doubts over a December Fed pivot.

According to the FedWatch Tool, the probability of a 75-basis point December rate hike fell from 24.2% to 23.0%. However, no FOMC members are influencing the reading. The Fed entered the blackout period on Sunday.