GBP/USD Forecast: "Momentum Indicators are at an Intriguing Crossroads"

GBPUSD analysis

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The GBP/USD rallied sharply at month end and is quoted at 1.2379 at the start of July, however analyst and technical forecaster Richard Perry of Hantec Markets says underperformance by Sterling is likely to continue.

Over the past couple of weeks, sterling has been the worst performing major currency by some way.

Although there was a degree of kick back against this yesterday, we expect this underperformance to continue.

Subsequently, today is an important session for the continuation of the near term corrective outlook on GBP/USD.

A strong positive candle posted yesterday was counter to a three week downtrend and gives another chance to sell. This trendline sits at $1.2405 today as the early move has dropped back again.

However, if the bulls can rally again and post another positive candle, then it would break the three week downtrend and suggest the market is ready to pull higher once more.

GBPUSD chart

Momentum indicators are at an intriguing crossroads too, where they remain negatively configured on a near term basis, but With Stochastics ticking higher, this could also be a turning point for a rally.

The hourly chart shows the importance of how the market responds around $1.2400 resistance (an old basis of support which capped yesterday’s recovery) will be for the near term outlook.

We favour a continuation of the move lower, with another leg to test $1.2250 and potentially $1.2160 before the medium term range support kicks in. Above $1.2450 drives for recovery again.

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Major forex and equity indices remain stuck on a see-saw of risk-on/risk-off as a lack of conviction has taken over in recent sessions.

Depending upon how the wind blows, there is consideration of the bearish factors of second waves COVID-19 infections versus the more bullish positioning for continued stimulus from central banks and governments.

However, the feeling is that the risk recovery of Q2 which drove record gains on Wall Street.

However, in the past couple of weeks, uncertainty has crept into markets, The US dollar has gone almost nowhere over the past week and this is reflected across the outlook of consolidation across major forex pairs.

One market is though making ground, with the breakout on gold to multi-year highs. Can this be sustained? In the past 24 hours we have seen Treasury yields starting to pick up once more and a mild yield curve steepening.

This tends to come with more positive risk environment, which is good for equities but less so for gold. The PMI data (manufacturing and services) and crucial US jobs data (ADP today, Nonfarms tomorrow) in the coming days could be key to whether this improvement in yields continues.

Initial signals from the Chinese PMIs are positive and it will be interesting to see if this continues with the European data and ISM later today.