GBP to USD Forecast: Bulls Target $1.0750 to Bring $1.21 into Play

It is a quiet day ahead for the GBP/USD. There are no UK economic indicators for the markets to consider today, with the UK markets closed on Boxing Day.

With the European and UK markets closed and the lack of stats, there are unlikely to be any material moves through the Asian and UK sessions. We could see some activity during the US session, though volumes are unlikely to see a material jump.

The quiet session will allow investors to consider the current economic outlook and the balance of power between the Fed and the BoE.

While US economic indicators on Friday reflected the early signs of Fed policy effects on the economy, the US unemployment rate sits at 3.7%, well below the 5% mandate. Labor market conditions suggest the Fed has more wriggle room to bring inflation to target.

By contrast, the latest UK labor market report was less impressive. The unemployment rate ticked up, with claimant counts pointing to a further rise in the unemployment rate over the near term.

Significantly, the UK economy contracted in Q3. In contrast, the US economy expanded at a more marked pace than economists anticipated, suggesting that the BoE would need to take its foot off the gas sooner than the Fed.

Last month, the Bank of England warned that the UK is facing its lengthiest recession on record. The downward revision to Q3 GDP numbers could force the BoE to pause and assess the impact of lifting rates to their highest level since 2008.

With the UK on holiday, no MPC members are due to speak.

GBP/USD Price Action

At the time of writing, the Pound was up by 0.12% to $1.20609. A bullish start to the day saw the GBP to USD rise from an early low of $1.20460 to a high of $1.20748 before easing back.

Technical Indicators

The Pound needs to avoid the $1.2051 pivot to target the First Major Resistance Level (R1) at $1.2085 and the Friday high of $1.20903. A return to $1.2070 would signal a bullish session. However, the Pound would need a risk-on session to support a breakout.

In the case of an extended rally, the GBP/USD would likely test resistance at $1.21 but fall short of the Second Major Resistance Level at $1.2124. The Third Major Resistance Level (R3) sits at $1.2197.

A fall through the pivot would bring the First Major Support Level (S1) at $1.2012 into play. However, barring a risk-off-fueled sell-off, the GBP/USD should avoid sub-$1.20 and the Second Major Support Level (S2) at $1.1979.

The Third Major Support Level (S3) sits at $1.1906.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bearish signal. The GBP/USD sits below the 100-day EMA, currently at $1.21350. The 50-day EMA converged on the 100-day EMA, with the 100-day EMA narrowing to the 200-day EMA, delivering bearish signals.

A bearish cross of the 50-day EMA through the 100-day EMA would support a fall through S1 ($1.2012) to bring sub-$1.20 into play. However, a GBP/USD move through R1 ($1.2085) would give the bulls a run at R2 ($1.2124) and the 100-day EMA ($1.21350).

The US Session

It is a quiet day ahead, with no US stats for the markets to consider. The lack of stats should leave the GBP/USD range bound through the US session.

However, FOMC member chatter could move the dial following last week’s US stats that sent mixed signals to the Fed.