Since the start of trading this week, the price of the GBP/USD has been experiencing a downward correction with losses that extended to the level of 1.2577. clearly, that’s before stabilizing around the level of 1.2595 at the time of writing the analysis. Last week’s gains reached the resistance level of 1.2732, its highest level in three months. Obviously, this happened following positive expectations for the future of the Bank of England’s policy. Furthermore, it will not be in a hurry to cut interest rates, which explains the limited downward correction against the strong US dollar.
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GBP/USD is likely to take cues from key US jobs indicators due throughout the week, as traders attempt to price in expectations for Friday’s non-farm payrolls report. However, analysts expect US employment to rise slightly by 179,000 versus the previous increase of 150,000. Moreover, November manufacturing PMI numbers so far point to a sharper contraction in employment.
According to the Forex currency market, the US dollar was stronger against the British pound and other major currencies. Nearby, after a survey of the US economy showed continued growth in November and warned market participants of excessive Fed rate cut expectations. Accordingly, the pound-dollar exchange rate fell again to 1.26 after the ISM survey of the services sector recorded a strong level of 52.7. clearly, that’s exceeded analysts’ expectations of 52 and represented an increase in activity from 51.8 in October. A reading above the 50 level indicates growth, which confirms that the overall growth rate in the largest sector of the US economy remains healthy.
Recently, the price of the US dollar declined during the month of November as markets raised their expectations regarding the timing of interest rate cuts by the Federal Reserve. Furthermore, by considering that inflation and economic activity had declined quickly enough to justify such a move. thus, if incoming data indicate that the economy is stronger, which would be consistent with a moderate decline in inflation, expectations of interest rate cuts are likely to decline. This would support the US dollar.
Recently, the price of the GBP/USD made two failed attempts to break above the key psychological level of 1.2700 and then fell to the 1.2600 area, creating a double top pattern. As shown, a break below the neckline support could trigger a drop of the same height as the formation or around 100 pips, sending GBP/USD to the 1.2500 support level next. However, technical indicators indicate that support is likely to continue.
Nearby, the 100 SMA is above the 200 SMA to indicate that there is still an upside opportunity. At the same time, the dynamic support of the 200 SMA lines up with the double upper neckline adding to its strength as a floor. However, the gap between the indicators is narrowing indicating weak upward momentum. Also, the stochastic indicator is already moving higher to confirm that upward pressure exists, and the oscillator has room to rise before it reflects overbought levels. Finally, the RSI is also trending higher, so the price may follow suit while buyers take control.
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