GBP/USD Daily Forecast – Pound Drops to 2-Week Lows Ahead of ADP Jobs Report

GBP/USD Testing Support That Held it Higher in May

The British pound showed weakness in the early day on Wednesday as it was the only major currency that failed to bounce against the greenback. GBP/USD has fallen below the 1.2600 handle and is testing levels not seen since around the middle of June.

Lower than expected UK economic data put further pressure on the pair. The UK services PMI was printed at 50.2 in June versus an expected 51.0 in the prior reading and a forecast of the same. Markit reported a slowdown in business activity following a rebound in the prior month. Their survey also showed a decline in client demand although staffing figures picked up at the highest pace in nearly two years.

GBP/USD is attempting to close lower for a third consecutive session, although there is some notable support that is holding the pair in early day trading.

Job figures out of the US will be released by the ADP later in the day. This report stands to trigger some short-term volatility in the pair. However, I expect a bit of a slowdown into Thursday as American traders have the day off in celebration of the fourth of July.

Technical Analysis

A horizontal level at 1.2570 has come into play for GBP/USD. On a weekly chart, the pair last closed below this level about two years ago. The level also triggered a reversal in May that eventually lead to a test of important resistance at 1.2750.

In addition to the horizontal support level, GBP/USD is also testing the lower bound of a trend channel. This channel is best seen on a 4-hour chart and originates from a high printed last month.

Further adding to the confluence of support is the 76.4% Fibonacci retracement measured from June lows to highs.

In the near-term, I see resistance around the 1.2600 handle. Yesterday, sellers stepped in ahead of the level to keep the pair lower within its current downtrend.

Bottom Line

The momentum remains to the downside but there is some important support in play at 1.2570.
Volatility can slow later today ahead of Thursday’s US holiday.
A sustained break above 1.2600 should remove some of the near-term bearish pressure.