GBP/USD drops further to 1.2200 amid USD strength

• Break under 1.2300 activates correction of last week GBP/USD rally. 
• Pound pulls back on Friday versus CHF and EUR, USD unaffected by economic data. 

The GBP/USD pair fell to the lowest in a week during Friday’s American session, approaching 1.2200. It bottomed at 1.2200 and then it bounced modestly. A stronger US dollar across the board pushed the pair to the downside. 

A terrible reading in the NFP, a surprise positive ISM non-manufacturing report, were ignored by market participants that continue to focus on the very short-term and the economic outlook. The greenback held to gains after the reports and even rose further later. The DXY stands at the highest in a week above 100.70, up 0.55% for the day. 

On the contrary, the pound showed signs of weakening on Friday. It is falling versus the Swiss franc and the euro after rising steadily for days. Despite Friday’s correction, the pound is holding to weekly gains versus its main European rivals.  

Technical outlook 

The GBP/USD “is still suffering from downside momentum on the daily chart and is trading below the 50, 100, and 200-day Simple Moving Averages. However, momentum is off the lows, and the Relative Strength Index has stabilized”, explained Yohay Elam, analysts at FXStreet. Once the 50-day SMA crosses the 200-day SMA, the death cross pattern will be triggered, a bearish sign, warns Elam. “All in all, bears are still in the lead.”

Late on Friday, trades at 1.2220/40, at the 20-day SMA, after breaking to the downside a 4-day trading range. The decline took place after GBP/USD was unable to break the 1.2470/1.2500 barrier. 

Technical levels