GBP/USD Daily Forecast – Sterling Holds Near Important Support Level

GBP/USD is showing resilience as it holds above a major technical level despite several recent developments.

Last week, several members of the Bank of England expressed their dovish views towards monetary policy and that easing might be needed to support the economy. Yesterday’s GDP report from the UK confirmed the views of the policymakers and further increased the odds that a rate cut is looming.

Despite this, GBP/USD has been able to hold below a horizontal level at 1.2975. Well, technically speaking, it is currently trading below it but it’s much too early to call it a downside break. The importance of the technical level is that it held the currency pair lower from around the middle of October until an eventual upward break in December. Technical traders will certainly have their eye on this level and make decisions based on the reaction from it.

While Sterling is showing some resilience, it is certainly not showing strength. The currency is down about three-quarters of a percent against the greenback in the week thus far and is the weakest among the major currencies. Traders will likely want to see a sign of strength from here before making an attempt at positioning long.

Later in the session today, the latest Consumer Price index figures will be released out of the United States. Analysts are expecting the index to have risen 0.2% last month and volatility is expected following the release.

Technical Analysis

The dollar is regaining some upward momentum in the early day although the price action that follows the CPI release will be important.

It will likely take a break above recent highs in the dollar index (DXY) to force a break of support in GBP/USD. DXY eased lower on Friday after the US jobs report came in a bit softer than expected. The index was once again under pressure on Monday but held to the range set out on Friday.

A downside break in GBP/USD could trigger an eventual move toward the 1.2800 area. On a daily chart, the lower bound of a rising trend channel is currently near the level. This channel support might act as a magnet for the exchange rate if it were to break lower.

On the other hand, while the pair stays above 1.2975 support, resistance for the pair is seen at 1.3050. The same level held the pair higher late last week and the exchange rate gapped below it to start this week. A rally back to the level would serve to close the gap.

Bottom Line

• GBP/USD shows resilience by holding above support despite the slew of negative news as of late.
• CPI Data out of the US will be released later today which could set the tone for the near-term direction in the pair.