GBP/USD to Face Added Pressure This Week

Summary:

The GBP/USD pair is poised to face additional pressure this week as the greenback gets tailwinds from last Friday's NFP report.

The GBP/USD pair is down 0.6% as the US Dollar continues to strengthen following Friday’s upbeat Non-Farm Payrolls report. The pair has fallen for two straight weeks and for five out of the previous six weeks as the US gains strength from a combination of a hawkish Fed and risk aversion from fears of a global recession. The Pound is also experiencing some shaking from the political situation in the UK after the resignation of cabinet members en masse forced the exit of erstwhile UK prime minister Boris Johnson.

The stellar NFP data has cleared the pathway for further rate hikes after staving off recession fears in the US. The US economy added 372K non-agric public sector jobs, which beat the market expectation of +260K. In addition, the unemployment rate remained static at 3.6%, while average hourly earnings fell from 0.4% in May to 0.3% in June, meeting analysts’ expectations. The data set was positive for a greenback already riding a bullish wave and put the pair under pressure.

In a relatively light week of fundamentals, the Pound is expected to face a test on Monday and Tuesday when the Bank of England Governor Andrew Bailey speaks at two events, including a parliamentary session to discuss the BoE Financial Stability Report on Monday. This kicks off at 2.15 pm UTC.

GBP/USD Forecast

The daily chart indicates two potentially bullish patterns: the falling wedge and the bullish divergence of the RSI from the price action.

This move requires a bounce that takes out the wedge’s upper border and the 1.21673 resistance (12 May low and 4 July 2022 high). This breakout move targets the 1.22755 resistance (28 June high) and must breach the 1.24167 resistance before the measured move’s expected target at 1.26546 (31 May 2022 high).

On the other hand, a decline below the 1.19991 support invalidates the wedge pattern’s bullish expectation and opens the door toward the 1.16566 support in the first instance. This 25 March 2020 low is the pivot to beat for the bears before the 1.14538 support formed by the confluence of the 18-23 March 2020 lows enters the mix.