GBP/USD Gives Back Bulk of Weekly Gain

An early-week rally in GBP/USD saw the pair trading at levels not seen in a month. However, buyers were unable to sustain the rally and the pair has retreated to wipe out much of the gain. Where the pair closes relatively to the weekly open will tend to set the tone for next week.

A rising dollar has been the main driver for weakness in the pound to dollar exchange rate in the second half of the week. The trade-weighted dollar index is up 1% from its lows earlier in the week although it has come under a bit of pressure ahead of the North American session on Friday.

The greenback rallied after yesterday’s jobless report revealed 5.2 million new claims for benefits filed last week. The running four week tally for this report indicates just under 22 million jobs have been lost in the United States.

There are no important economic releases in the North American session today and the exchange rate may see a drop in volatility as a result. Next week, the UK will release survey data from purchase managers in the services and manufacturing industries. The data often accompanies a volatile reaction in the markets as it is considered to offer a real-time view of the economy.

Technical Analysis

GBP/USD has fallen into a bit of range after dropping below a horizontal level at 1.2523. This same level served to trigger a notable turn lower in September of last year. While below it, the pair has the potential to continue declining with a possible first target at 1.2306.

In the session ahead, a slowing of volatility appears likely considering the lack of economic releases. In this context, it does not appear likely that the pair will make a run for weekly highs in the event it can cross above 1.2523 resistance.

Where the pair closes by the end of the day will be important. If it closes near 1.2450, about a quarter of a percent lower from current prices, a bearish candlestick pattern will print on a weekly chart to set a negative tone for next week.

Bottom Line

• GBP/USD has given back most of the gains from an early week rally and today’s close will tend to set sentiment for next week.
• There aren’t any relevant economic releases in the session ahead and therefore a range appears likely.