(MENAFN- Daily Forex)
The Pound Sterling appears to remain on the defensive against the US Dollar, and we may see levels below the psychological support of 1.30 for the GBP/USD pair again in the next five days. Our forecast model for this week suggests that the downside is favoured in the near term, with last week's rebound (Thursday/Friday) losing momentum at the nine-day simple moving average.
Technical forecasts for the GPB/USD pair today: Technically, this indicator points to a decline, and if we look at the daily chart, we can see that gains have been sold off upon reaching the line. If the exchange rate breaks above the nine-day moving average, then the more realistic possibility of stabilization above 1.3050 should be considered. However, momentum is weak, with the Relative Strength Index at 40 and pointing downward, confirming the preference for weakness in the near term. Fouad Razakzada, an analyst at City Index, says that the GBP/USD pair has reached an interesting area near 1.3050 to 1.3080, where it has previously faced selling pressure. The question is: can the decline resume from here?
The next target below 1.30 is the support level of 1.2870, which represents the breakout point from mid-August. Below that, 1.2800 becomes the next important level, where the 200-day moving average also comes into play. Overall, the broader trend for GBP/USD remains bearish, and the US dollar is likely to remain supported ahead of the upcoming US presidential election. With Donald Trump gaining ground in the polls, markets are starting to price in a possible victory, which could keep the US dollar supported.
According to data from the Economic Calendar, there is no top-tier data due from the UK or US this week, leaving the market to focus on the big event risks this week. Meanwhile, the US election (4 November) and US non-farm payrolls (31 October) will keep financial markets on edge. A nervous market is one that tends to favour the US dollar by default.
In the UK, we will receive the October PMI survey, which could disappoint as it will cap a period of heightened anxiety ahead of the UK budget this week. Overall, a softer reading (consensus expects the services PMI to come in at 52.2) could cause a setback for sterling ahead of the weekend. But it is the speeches from Bank of England Governor Andrew Bailey and members of the Monetary Policy Committee that could be of most interest to the market. The risk here is that Bailey (who speaks on Tuesday) sees signs in the latest data that could allow the Bank to accelerate the pace of rate cuts.
According to analysts at Credit Agricole, "Market participants will be looking for any indications that there is now growing support on the Monetary Policy Committee for further monetary easing in the future. The pound sterling may remain at risk in the near term as a result, although we recognize that some negativity is priced into the currency and no longer appears overbought or overvalued."
Overall, last week's inflation figures were well below expectations, which could allow the MPC to cut rates in November and then again in December. A November rate cut is therefore fully priced in by the market and would not cause any problems for sterling, but the December rate is only a 50/50 chance.
If the December rate rises to around 100%, sterling could come under pressure.
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