GBP/USD Daily Forecast – Sterling Starts the Week Near 7-Month Lows

Friday’s NFP Data Triggered a Bearish Break

The markets were optimistic of the US economic outlook following Friday’s jobs data as the headline increase in new jobs for June exceeded expectations. Average hourly earnings ticked lower although there was an upward revision for the prior month. The unemployment rate ticked up to 3.7%.

Recent Fed speak had already hinted that the central bank was not looking to ease as aggressively as the markets had been looking for. The NFP report confirmed it, and as a result, the US dollar index (DXY) rallied to fresh monthly highs.

There are several reversal patterns as a result of last weeks price action. DXY, for example, has posted a bullish morning star pattern on a weekly chart. GBP/USD printed the inverse, a bearish evening star pattern. The same candlestick formation is seen in EUR/USD as well.

At the same time, it is important to consider that DXY has struggled to get above resistance near 98 since late last year. The dollar might need some form of a catalyst if it is to follow through with what the technical charts are suggesting.

Technical Analysis

GBP/USD broke below the June low on the back of the NFP inspired decline last week. i suspect that this triggered stops from long positions. Often, in such cases, we see a bit of a relief rally.

If this were to happen in the early week, I think GBP/USD might see sellers at 1.2570 resistance. This was the level that held the pair higher in the days leading up to the NFP report.

To the downside, I had mentioned support at 1.2486 in Friday’s forecast. This level had held the pair higher in 2018 on a daily close basis. So far, it has contained the downside. I expect, at least in the early week, that it will continue to do so.

Bottom Line

• GBP/USD might see a relief rally in the early week after stops were triggered below the June low.
• A catalyst might be needed to continue the prior downside pressure, however, the economic calendar is quite light in the early week.
• Upside resistance at 1.2570 stands to hold sellers if the pair manages to get there.