Yahoo Finance GBP/USD Daily Forecast – Sterling Under Pressure, Back Below 1.25
GBP/USD Fails to Hold Key Support
The theme of pound weakness has been evident as the dollar index is seen ticking higher in early trading while GBP/USD is down nearly half a percent on the day. The British pound is once again the weakest currency on virtually every time frame from daily to monthly.
Support at 1.2500 was considered significant in GBP/USD because of its psychological properties. The failure to hold above it is likely to have caused some stops to be triggered.
In yesterday’s forecast, I discussed conflicting signals on a weekly chart. The drop in the first week of July had resulted in a bearish evening star print while last week’s recovery somewhat negated that prior as it resembled a weekly hammer candle. Today’s decline puts the evening star bearish pattern back into focus.
The US dollar index (DXY) is trying to post a second day of gains which has been weighing on GBP/USD. DXY bounced higher after testing the 200-day moving average on Friday. It is currently testing the 100-day moving average with more resistance from the 50-day moving average nearby.
UK employment data was mostly better than expected but failed to move the exchange rate much. The jobless rate remained unchanged at 3.8% in May while average hourly earnings jumped to 3.4% versus an estimate of 3.1% and a prior reading of the same. Unemployment claims were higher than expected with 38 thousand claims reported in June.
Technical Analysis
Yesterday’s candle print resulted in a bearish engulfing candle on a daily chart. The early-day decline today has nearly fully wiped out last week’s recovery.
The pair is currently testing the upper bound of a declining trend channel that was broken last week. Considering how heavy the pair has sold off, and where DXY is, we might see a bounce from here.
I expect that near-term recovery rallies will be sold off considering the strong downside momentum in the early week. A likely area for sellers to step in is the psychological 1.2500 area.
Bottom Line
Sterling continues to show weakness when compared to the major currencies
Rallies into 1.2500 are likely to be met with sellers
There is some support here from the upper bound of a previously broken trend channel. Further support is at 1.2450 which held the pair higher last week.
This article was originally posted on FX Empire
