GBP/USD Forecast: 1.2580 aligns as next bullish target

GBP/USD steadies above 1.2500 in the European morning.
The near-term technical outlook highlights a buildup of bullish momentum.
Pound Sterling could target 1.2580 on a disappointing US jobs report.

Eren Sengezer FXStreet

GBP/USD has been moving sideways in a narrow channel above 1.2500 on Friday, with market participants refraining from making large bets ahead of the all-important May jobs report from the US.

The persistent selling pressure surrounding the US Dollar (USD) fuelled GBP/USD's rally on Thursday and the pair reached its highest level in three weeks near 1.2550. The significant downward revision to the first-quarter Unit Labor Costs data, from 6.3% to 4.2%, triggered a fresh leg of USD sell-off in the American session by feeding into dovish Federal Reserve (Fed) expectations.

The US Bureau of Labor's monthly report is expected to reveal an increase of 190,000 in Nonfarm Payrolls (NFP) in May, down from 253,000 in April. Average Hourly Earnings are forecast to rise 4.4% on a yearly basis, matching the previous month's reading.

In case NFP growth comes in below 150,000, investors could see that as a development reaffirming a pause in the Fed's policy tightening in June and force the USD to stay on the back foot. A no change in wage inflation, or an unexpected decline, should have a similar negative effect on the USD's valuation.

If the labor market report shows a healthy increase in payrolls, near 250,000, market participants could shift their stance and start pricing in a stronger probability for one more 25 basis points Fed rate hike at the next meeting. In that scenario, GBP/USD could turn south ahead of the weekend.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the four-hour chart stays well above 60 and the 20-period SMA on the same chart completed a bullish cross with the 100-period SMA, reflecting the buildup of upside momentum. GBP/USD faces interim resistance at 1.2550 (daily high, static level) ahead of 1.2580 (static level) and 1.2650 (beginning-point of the latest downtrend).

On the downside, 1.2520 (Fibonacci 23.6% retracement) aligns as immediate support before 1.2500 (psychological level) and 1.2480 (200-period SMA, Fibonacci 50% retracement).

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Author

Eren Sengezer

FXStreet

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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