GBP/USD Daily Forecast – Sterling Posts Losses for 5 Consecutive Days

The Bearish Streak Continues

GBP/USD dropped below major support at 1.3000 yesterday to trade at a fresh three-week low. The pair continues to get sold on small recoveries as investors consider the possibility of a no-deal Brexit.

The pair shows some potential for a bounce higher in the session ahead, although volatility is expected to decline as several banks have started their holiday. This will likely lead to small ranges for currencies for the remainder of the week.

The economic calendar is light for the session ahead. The only release pertaining to the pair is the Richmond manufacturing index which is a release that typically does not elicit much of a market reaction. The only other data for the remainder of the week is the weekly US jobless claims which will be released on Thursday.

Technical Analysis

GBP/USD has fallen just over 4% from the high posted the Friday before last. Although at the same time, the pair has been more volatile than usual since September as investors price in ongoing Brexit developments.

As a result, the exchange rate has not tested its 200-day moving average which is somewhat unusual. In fact, the pair would need to decline short of 2% to test this commonly looked at moving average. This goes to show how much more downside potential there is for the pair.

In the short-term, there is some potential for a bounce in the currency pair. The US dollar index (DXY) tested some major resistance in the early week and some pressure in the greenback could translate into a bounce in GBP/USD.

The main hurdle for the pair, however, comes in at 1.2950. While below the level, there is no reason to believe the pair will move higher. Speaking strictly from a technical perspective.

If the pair does recovery from here, the 1.3000 level offers a major hurdle. Just ahead of it, there is resistance at 1.2989.

In the event the pair falls through yesterday’s low of 1.2905, bears will likely be encouraged to continue driving the pair lower. The next point of downside interest falls at 1.2788. This level held the pair higher during a consolidation between late October and November.

Bottom Line

• GBP/USD downside momentum has subsided in the early day with holiday trading compressing typical ranges.
• A break above 1.2950 could signal a near-term recovery.