GBP to USD Forecasts: Return to $1.2250 in the Hands of US PMIs

It is a relatively quiet day ahead for the GBP/USD. Finalized manufacturing PMI numbers for March will be in focus. An upward revision to prelim figures would support a bullish morning session.

The latest round of UK economic indicators has impressed, easing fears of a UK economic recession.

However, elevated inflation remains a bugbear for the BoE. A need for further interest rate hikes could put the UK economy under pressure and refuel fears of a policy-driven recession.

Earlier today, disappointing PMI numbers from China set the mood. The Caixin Manufacturing PMI fell from 51.6 to 50.0. Economists forecast an increase to 51.7.

A surge in crude oil prices, fueled by an unexpected OPEC decision to cut output, added to the bearish mood. The jump in crude oil prices could undo the work of central banks to bring inflation to target.

With the economic calendar on the light side, investors should track BoE member commentary. However, according to the calendar, no MPC members are delivering speeches today, leaving chatter with the media to influence.

GBP/USD Price Action

This morning, the GBP/USD was down 0.40% to $1.22801. A mixed start to the day saw the GBP/USD rise to an early high of $1.23299 before sliding to a low of $1.22774. The GBP/USD fell through the First Major Support Level (S1) at $1.2295.

Technical Indicators

The Pound needs to move through S1 and the $1.2359 pivot to target the First Major Resistance Level (R1) at $1.2393 and the Friday high of $1.24232. A return to $1.24 would signal an extended breakout session. However, the Pound would need risk-on sentiment and weak US economic indicators to support a breakout session.

In the event of an extended rally, the GBP/USD would likely test the Second Major Resistance Level (R2) at $1.2458. The Third Major Resistance Level sits at $1.2557.

Failure to move through S1 and the pivot would leave the Second Major Support Level (S2) at $1.2260 in play. However, barring a risk-off-fueled sell-off, the GBP/USD should avoid sub-$1.2250 and the Third Major Support Level (S3) at $1.2161.

Looking at the EMAs and the 4-hourly chart, the EMAs send a mixed signal. The GBP/USD sits above the 100-day EMA, currently at $1.22318. The 50-day EMA narrowed to the 200-day EMA, while the 100-day EMA widened from the 200-day EMA, delivering mixed signals.

A move through S1 ($1.2295) and the 50-day EMA ($1.22959) would support a breakout from R1 ($1.2393) to target R2 ($1.2458). However, failure to move through S1 ($1.2295) and the 50-day EMA ($1.22959) would bring S2 ($1.2260) into view. A move through the 50-day EMA would send a bullish signal.

The US Session

Looking ahead to the US session, it is a relatively quiet day on the US economic calendar. The US manufacturing sector will be in focus, with the ISM Manufacturing PMI and sub-components likely to have more influence on the GBP/USD.

Economists forecast the ISM Manufacturing PMI to fall from 47.7 to 47.5.

Investors should also monitor Fed chatter on monetary policy and the US economy.