GBP/USD Technical Analysis: Attempts To Stop Losses

(MENAFN- Daily Forex)
  • The gbp/usd exchange rate entered the new week's trading near its lowest level in two months around the 1.2332 support level.
  • It may try to compensate for some of its recent losses if calm returns to government bond markets on both sides of the Atlantic in the coming days.
  • The GBP/USD pair settled around 1.2360 at the beginning of today's trading.

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The US dollar was broadly bought last week, enabling the greenback to consolidate its hold on top of the major currency league table for the month of May while pushing the pound sterling to some of its lowest levels since the April open at one point. Commenting on this, Sean Osborne, chief forex analyst at Scotiabank, says:“The cable losses stabilized in the low area of 1.23, and while the short-term patterns appear weak, the pound finds some support on weakness before the 1.23 line, which reduced the downside pressure.” The analyst added,“Losing the support at 1.23 targets more losses, to the 1.21 area. And above 1.24 in the short term, it will raise the pound sterling.”

Overall, sterling's losses were initially catalysed by the collapse in the UK government bond market after inflation figures for April led to a significant upward revision of market expectations for the Bank of England's (BoE) bank rate, although the pressure was underpinned on Friday by US data. This was after an uptick in the US Fed's preferred inflation measure that threw fuel to the fire of the global government bond market which burned more intensely throughout the week but actually dates back to the May 10 release of official US inflation.

Joseph Capurso, analyst at Commonwealth Bank of Australia, said,“However, the US dollar could rally from the bullish surprise of Friday's US non-farm payrolls report. The FOMC is hopeful that growth in average hourly earnings will slow from very strong rates despite low unemployment. The analyst added,“The price of the pound may fall to 1.2130 this week if the non-farm payrolls and wage numbers in the United States on Friday, or any other data, reinforce the recent rise in government bond yields and the exchange rates of the US dollar.”

Friday's US employment numbers are the highlights of what's been a quiet week in the UK calendar, but Wednesday's job openings survey, the Labor Force Turnover Survey (JOLTS) and the Institute for Supply Management's (ISM) manufacturing PMI survey released on Thursday could also weigh on the economy.

Meanwhile, GBP/USD could benefit if a weekend agreement between the White House and the GOP leadership in Congress gets enough support in both houses of congress for the government debt ceiling to be raised in time to avoid a technical default. Political disagreements over government spending plans have led many to speculate in recent weeks that no agreement will be reached on the budget and borrowing limits before the US Treasury runs out of cash on the estimated date of June 5.Sterling forecast against the dollar today:

For four consecutive trading sessions, the price of the GBP/USD currency pair is trying to halt the pace of recent losses, which affected the support level 1.2300, which was sufficient to push the technical indicators towards oversold levels. However, it must be taken into consideration that the important US economic data and the reaction to the US debt agreement will have a reaction on the performance of the currency pair by moving on its current downward path and moving towards deeper support levels, the closest to which they are currently 1.2270 and 1.2190, respectively.

On the other hand, according to the performance on the daily chart below, there will be no chance for a bullish reversal of the GBP/USD pair without moving towards the resistance levels 1.2550 and 1.2660, respectively.

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