GBP/USD Forecast: Near-term technical outlook points to bearish shift

GBP/USD has edged lower early Wednesday after having snapped a four-day winning streak on Tuesday. The pair stays below 1.2600 and faces the next support at 1.2560. In case this level fails, the bearish pressure could increase.

The greenback capitalized on rising US Treasury bond yield and the US Dollar Index recovered from the monthly low it touched at 101.30 earlier in the week. The benchmark 10-year US T-bond yield stays in positive territory in the European session and helps the dollar stay resilient against its major rivals. 

Meanwhile, the British pound is finding it difficult to attract investors amid the cautious market atmosphere. The UK’s FTSE 100 Index is posting small daily losses and the US stock index futures trade little changed. 

In the second half of the day, the ISM Manufacturing PMI will be featured in the US economic docket and the Federal Reserve will release its Beige Book. Market participants will look for fresh clues on input prices and the labor market conditions.

US ISM Manufacturing PMI May Preview: Gloom persists despite an US expanding economy.

In case the US data show that businesses are struggling to find workers and see supply-chain issues lasting longer, US T-bond yields could push higher and help the dollar continue to outperform its rivals. On the other hand, if investors grow increasingly concerned about a recession in the US after the data, another leg lower in yields could help GBP/USD rebound.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the four-hour chart dropped below 50 on Wednesday. Additionally, GBP/USD stays below the ascending trend line coming from mid-May after having dropped below it on Tuesday. Finally, the last four four-hour candles closed below the 20-period SMA, confirming the bearish shift in the near-term outlook.

On the downside, 1.2560 (200-period SMA) aligns as next key support. In case that level turns into resistance, GBP/USD could extend its slide toward 1.2540 (static level, former resistance) and 1.2500 (psychological level).

1.2600 (psychological level) forms first resistance before 1.2630 (static level, 20-period SMA) and 1.2660 (static level).