GBP/USD Under Bearish Pressure: Technical and Fundamental Analysis

The GBP/USD pair has come under significant bearish pressure, with recent movements pushing the pair below the lower limit of the ascending regression channel. The 4-hour chart’s Relative Strength Index (RSI) has also fallen below 40, indicating a bearish shift in the short-term outlook. This technical backdrop suggests increasing selling pressure and a potential continuation of the downtrend.

Technical Analysis: Key Support and Resistance Levels

Immediate support for GBP/USD is found at the Fibonacci 23.6% retracement level of the latest uptrend, aligning at 1.2700. If the pair breaks below this level and it starts to act as resistance, sellers could then target 1.2640, which coincides with both the 100-day Simple Moving Average (SMA) and the 200-period SMA on the 4-hour chart. Further bearish momentum could see the pair testing the psychological support at 1.2600, a significant static level.

On the upside, resistance levels are identified at 1.2730, which is the lower limit of the ascending channel and aligns with the 100-period SMA. A break above this level could see the pair testing the 1.2800 level, which is both the midpoint of the ascending channel and a crucial psychological and static resistance.

Market Sentiment and Recent Movements

The bearish momentum for GBP/USD was notably strong as the pair continued to edge lower towards 1.2700 during the European session on Monday. This decline follows a significant drop on Friday when the pair erased all of its weekly gains. The US Dollar strengthened on the back of positive labor market data, which prompted investors to reassess the likelihood of a Federal Reserve rate cut in September.

The US Bureau of Labor Statistics reported that Nonfarm Payrolls increased by 272,000 in May, surpassing the analysts’ estimate of 185,000. Additionally, annual wage inflation, as measured by the Average Hourly Earnings, rose to 4.1% from April’s 4%. This robust data increased the probability of the Fed maintaining its policy rate in September to slightly above 50%, up from 40% earlier in the week, according to the CME FedWatch Tool.

Upcoming Economic Events and Their Impact

Looking ahead, key economic events could further influence GBP/USD. On Tuesday, the UK’s Office for National Statistics will release labor market data, which could provide insights into the health of the UK economy. More crucially, the US Consumer Price Index (CPI) data for May will be released, followed by the Federal Reserve’s monetary policy decisions and the revised Summary of Projections.

Market participants will be closely watching these events, as they are likely to impact risk sentiment and the perceived strength of the USD. At the time of writing, US stock index futures were down between 0.3% and 0.4%, indicating that the USD could maintain its strength in the second half of the day due to safe-haven flows dominating the markets.

In summary, GBP/USD is currently under bearish pressure, driven by both technical factors and strong US economic data. Immediate support is at 1.2700, with further targets at 1.2640 and 1.2600 if the downtrend continues. Resistance levels are at 1.2730 and 1.2800 on the upside. Upcoming economic data from the UK and the US, particularly the CPI report and the Fed’s decisions, will be critical in determining the pair’s near-term direction. As market sentiment evolves, traders should remain vigilant and responsive to new developments.