GBP/USD Daily Forecast – Sterling Declines to Wipe Weekly Gain

UK Construction PMI Falls Short of Expectations

The UK construction sector showed continued weakness in the last month of the year with output falling in all three major categories. However, Tim Moore from IHS Markit commented that the worst might be behind us as the downturn in order books has subsided since August, helping to bring employment figures closer to stabilization.

The construction purchasing managers index was reported at 44.4 against the analyst estimate of 45.8.

Later in the US session, two data releases stand to impact the market. The ISM manufacturing PMI will be released in the early North American session while the Fed reports minutes from their last meeting later in the day.

Although GBP/USD has come under a bit of pressure of the past two sessions, Sterling has shown strength among the cross rates and has formed a base against several major currencies this week. This could trigger a bounce higher in GBP/USD in US trading, especially if the upcoming data releases don’t support further dollar buying.

The greenback has been recovering higher since yesterday after a sharp fall during holiday-thinned trading. The dollar has gained against all the major currencies since yesterday except for the Japanese yen.

Technical Analysis

GBP/USD is nearing support at 1.3050 and considering the strength among the cross rates, this is a level that could hold the pair higher in the session ahead.

The price action today will be important for the exchange rate as it has wiped out the early week gain. As a result, GBP/USD is on pace to post a bearish reversal candle on a weekly chart which stands to keep bearish pressure intact next week.

A rally back towards the daily open would tend to negate the weekly pattern while a close anywhere below 1.3100 today would tend to reinforce a bearish bias next week. Upside resistance for the session ahead is found at 1.3145.

Bottom Line

• GBP/USD is on pace to post a second consecutive day of losses and has erased the early week gain.
• Today’s close will be important. A close near current levels would result in a reversal weekly candle. This would tend to keep the pair under pressure next week.