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Despite the federal holiday in the US on Monday, Martin Luther King Day, the pound sterling slipped for a while, though it was a minor decline. Bearing in mind that the sterling is obviously overbought, it should have fallen to a greater extent unless American traders took a day off.
For the time being, the British pound is set to decline amid the overbought market conditions and forecasts for the UK macroeconomic data. The jobless rate in the UK is expected to remain flat in December. The number of applications for unemployment benefits could have contracted by 36K in December. The employment could have increased by 115K. On the flip side, average earnings might have dropped to 3.7% in November from 4.3% in October. In other words, the unemployment rate remains the same in the Kingdom, but wages go down. If we take into account the persistent soaring inflation, the situation looks dismal. No wonder, retail sales data have been printing worse readings month after month. Under such conditions in the labor market, it would be logical to expect a gradual decline of the British currency.
UK Unemployment Rate
The inertial move of GBP/USD slowed down at about 1.3750 where the currency pair got stuck and then make a 100-pips upward retracement. The sterling has rallied for 4 weeks straight. Being still overheated, the odds are that the sterling will lose ground despite the ongoing retracement.
The RSI technical instrument is moving below the pivotal line of 70 on the daily chart, but it is still generating the signal of the sterling’s overbought status.
Outlook for GBP/USD
In this situation, the retracement can at least push the price down towards the level of 1.3600 passed earlier. This could happen in case the US dollar regains its footing. To make a full-fledged correction instead of a retracement, GBP/USD has to settle below 1.3560 on the 4-hour chart. Otherwise, the price might get trapped at around 1.3600 again.
Complex indicator analysis suggests selling GBP/USD for the short term and intraday amid the ongoing retracement. Technical indicators are signaling that we could buy the currency pair in the medium term because of the inertial move.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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