GBP/USD Daily Forecast – Sterling Extends Losses, Support in Play

Sterling Set to Post Largest Weekly Loss Among Majors

The British pound is on pace to post the largest loss among the eight most popular currencies in the world. GBP/USD is down about a percent and a half in the week thus far.

Despite the notable weekly loss, Sterling is still likely to post the largest gain among the majors for the month. The pound gained ground early in the month after a brief drop below 1.2000 and rallied for most of the month before a turn just ahead of the 1.2600 price point.

Sterling rose as market participants viewed the odds of a Brexit without a deal lessening after UK Prime Minister Boris Johnson was dealt with a series of defeats. Johnson continues to promise to deliver an EU exit by the end of October despite, what he views as, continuous hindrance in his efforts.

Somewhat offsetting Brexit developments for GBP/USD this week has been a notable rally in the greenback. The US dollar index (DXY) is on the verge of a 28-month high after a two-consecutive day rally.

Technical Analysis

The decline in GBP/USD picked up momentum following a break of a rising trend channel that had encompassed price action for about two weeks.

The pair is now seen testing support from the 200 moving average on a 4-hour chart. Further, a horizontal level at 1.2287 is quite important as well. This level was major resistance in August and turned into strong support after the pair rallied above it earlier this month.

I do think the pair could see a bit of a bounce considering how significant support is in this area. To the upside, resistance at 1.2373 held a rally yesterday and will remain an important level in the session ahead. In the event the pair continues lower, the next level of downside interest falls at 1.2189.

Bottom Line

• GBP/USD has come into a major support area which can trigger a bounce.
• Volatility might rise as today is the last trading day of the month and the quarter.