GBP/USD Daily Forecast – Technical Break Spells Trouble for Sterling

Both the price action and technical developments in GBP/USD this week highlight the reversal potential in the currency pair which has otherwise been in an uptrend since September.

The pound to dollar exchange rate gapped lower at the open this week and has been under steady selling pressure through the week. A small recovery mid-week following stellar UK services PMI data was short-lived and a drop below major support yesterdays shows the pair trading at its lowest since late December.

While investors no longer expect an urgent rate cut in the UK after last week’s Bank of England meeting, concerns over trade negotiations remain.

UK PM Johnson said in a speech on Monday that he wants the same agreement as Canada and displayed an unwillingness to negotiate. Michael Barnier, head of the EU commission task force for Brexit, referred to his request as ambitious at best.

Also weighing on the GBP/USD exchange rate is a strong dollar. The greenback has dominated the major currencies both this week and for the year thus far. The trade-weighted dollar index (DXY) has posted gains every day in the week so far and trades at fresh highs not seen since mid-October.

Technical Analysis

The bearish break below 1.2960 was a big one. This level not only served to hold the exchange rate higher on multiple tests in January, but it was also important resistance in the fourth quarter last year.

Further, GBP/USD is on pace to post a reversal weekly candle against almost all of its major counterparts.

The NFP report later today might alter the technical outlook, although it’s hard to envision such a scenario with the strong downward momentum displayed.

The prior 1.2960 support level is considered major resistance for the session ahead and the weekly close relative to it will be important. While below it, the next notable support level comes in at 1.2788.

For the session ahead, support is found at the late December low of 1.2903.

Bottom Line

• The technical outlook for GBP/USD hints of a prolonged decline.
• Sterling shows reversal signals against all its major counterparts and is the weakest major currency in the week thus far.