GBP to USD Forecasts: Bulls Target a Return To $1.23 on Wage Growth

It is a busy day ahead for the GBP/USD. After a quiet start to the week, UK wage growth and unemployment figures will draw interest this morning.

For the Bank of England and the monetary policy outlook, wage growth remains a focal point. A pickup in wage growth could force the BoE into delivering another aggressive policy move despite the implications for the UK economy.

Economists forecast average earnings plus bonuses to rise by 6.2% in November, up from 6.1% in October. Forecasts are more bullish for average earnings ex bonuses, which economists forecast to increase by 6.3% versus 6.1% in October.

A steady unemployment rate would support a more hawkish BoE policy move. However, claimant counts jumped by 30.5k in November, with economists projecting a 19.8k rise in December, which would signal deteriorating labor market conditions for the BoE to consider.

While the stats will provide direction, investors should also consider Monetary Policy Committee member commentary. With no members speaking today, chatter with the media could move the dial.

Brexit is another consideration for investors, with EU and UK negotiators back at the table this week. Northern Ireland and the Northern Ireland Protocol will remain the focal point, with the UK government looking to build better relations with the EU in the interest of the UK economy.

GBP/USD Price Action

At the time of writing, the Pound was up 0.01% to $1.21913. A mixed start to the day saw the GBP/USD rise to an early high of $1,22127 before falling to a low of $1.21720.

Technical Indicators

The Pound needs to move through the $1.2217 pivot to target the First Major Resistance Level (R1) at $1.2262 and the Monday high of $1.22889. A return to $1.2250 would signal a bullish session. However, the Pound would need the risk-on sentiment and a sharp pickup in wage growth to support a breakout session.

In the event of an extended rally, the GBP to USD would likely test resistance at the Second Major Resistance Level (R2) at $1.2335. The Third Major Resistance Level sits at $1.2453.

Failure to move through the pivot would leave the First Major Support Level (S1) at $1.2144 in play. However, barring a data-fueled sell-off, the GBP/USD should avoid sub-$1.21 and the Second Major Support Level (S2) at $1.2098.

The Third Major Support Level (S3) sits at $1.1980.

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 $1.21523. The 50-day EMA pulled further 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 ($1.21523) would support a breakout from R1 ($1.2262) to target R2 ($1.2335). However, a fall through the 50-day EMA ($1.21523) would bring S1 ($1.2144) and the 100-day EMA ($1.21238) into view. A fall through the 50-day EMA would send a bearish signal.

The US Session

It is a quiet day ahead on the US economic calendar, with the manufacturing sector in the spotlight. The New York Empire State Manufacturing Index will be in focus. A less marked contraction would support market bets of a soft landing.

However, with the stats on the lighter side, investors will need to monitor FOMC member chatter. Any talk of hitting pause on interest rate hikes or delivering another 50-basis point rate hike would move the dial. FOMC member Williams speaks late in the day.