GBP/USD Daily Forecast – Sterling Threatens Break of Major Support

GBP/USD has once again retreated to the same support level that held it higher several times last month. As a result of the overall heavy tone seen throughout the week, the odds favor an eventual downside break.

The currency pair started the week with a gap down and fell nearly 1.5% on Monday. Since then, recovery attempts have been short-lived with sellers quick to jump in on rallies.

Better than expected purchasing managers survey data for the services sector earlier this week offered a small rally, however, the gain has since been erased. Considering that the services sector is the largest contributor to UK GDP, the price action certainly suggests a strong bearish bias in the pair.

A downside break would be very significant for GBP/USD. The horizontal level in play at 1.2960 has not only supported price action on several tests in the year thus far, but it was also a major hurdle in the fourth quarter of 2019.

Further, while the pair has been rallying since September, a bearish break would provide technical evidence of a trend change. To be clear, a downside move below support stands to enforce a bearish view for technical traders for months to come.

Technical Analysis

Support at 1.2961 has been holding the pair higher, but so far, there has not been any technical indication of a recovery from the level. At the same time, a catalyst might be required for a downside break.

The ADP report yesterday showed a much larger increase in US jobs than analysts had expected. In this context, tomorrow’s NFP report is could come in strong, and this might offer the catalyst bears are looking for.

Upside resistance for the pair is found at 1.3050 and a recovery rally ended this week after briefly piercing above the level. It would take a break above it to mitigate the near-term downside pressure.

Some support is seen at 1.2903 in the event the pair breaks down. This same level held the pair higher post-election. However, a more likely first bearish target is found at 1.2788.

Bottom Line

• Price action this week has been heavily skewed to the downside for GBP/USD hinting of a bearish break to come.
• A downside breach below 1.2961 could see the pair extending lower towards 1.2788.
• A break above 1.3050 is required to ease the near-term bearish pressure.