GBP to USD Forecasts: Bears to Target $1.1950 on Policy Sentiment

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 reopening following the holidays, the GBP to USD found early price support this morning. COVID-19 news updates took center stage, with investors responding to the latest COVID-19 easing measures in China and news of the UK ending the publication of COVID-19 statistics.

However, easing COVID-19 measures in China could lead to a ramp-up in demand and reignite inflationary pressures, forcing central banks to take further action. Such an eventuality would shift monetary policy divergence more in favor of the Fed and the dollar, considering the current economic environment and outlook.

For a meaningful move recovery from $1.20 levels, investors would need more hawkish Bank of England commentary. While inflationary pressures have eased, further BoE rate hikes could exasperate economic conditions, however.

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 recent interest rate hikes on the economy.

No MPC members are due to speak today, leaving the GBP/USD in the hands of market risk sentiment.

GBP/USD Price Action

At the time of writing, the Pound was up by 0.09% to $1.20246. A mixed start to the day saw the GBP/USD rise to an early high of $1.20314 before falling to a low of $1.20017.

Technical Indicators

The Pound needs to move through the $1.2043 pivot to target the First Major Resistance Level (R1) at $1.2083. A return to $1.2050 would signal a bullish afternoon session. However, the Pound would need a risk-on session to support a breakout.

In the event of an extended rally, the GBP to USD would likely test resistance at $1.21 but fall short of the Second Major Resistance Level (R2) at $1.2153. The Third Major Resistance Level sits at $1.2263.

Failure to move through the pivot would leave the First Major Support Level (S1) at $1.1973 in play. However, barring a risk-off-fueled sell-off, the GBP/USD should avoid sub-$1.1950 and the Second Major Support Level (S2) at $1.1933.

The Third Major Support Level (S3) sits at $1.1823.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bearish signal. The GBP/USD sits below the 50-day EMA, currently at $1.21017. Following Monday’s bearish cross, the 50-day EMA fell back from the 100-day EMA, with the 100-day EMA narrowing to the 200-day EMA, delivering bearish signals.

A move through R1 ($1.2083) would bring the 50-day ($1.21017) and 100-day ($1.21153) EMAs into play. A breakout from the 50-day EMA would send a bullish signal. However, a GBP/USD fall through the 200-day EMA ($1.20211) would support a slide through S1 ($1.1973) to bring $1.1950 into view.

The US Session

It is a quiet day ahead, with the US housing sector data in focus. However, barring dire numbers, pending home sales figures for November should have a muted impact on the GBP/USD.

Market risk sentiment will remain the key driver, with investors also needing to monitor any FOMC member chatter.

Following the holidays, the markets are looking for a response to the latest private sector PMIs and inflation figures.