GBP/USD Forecast: Pound Sterling recovery to remain limited unless there is a risk rally

GBP/USD dropped below 1.2100 for the first time since March.
UK’s FTSE 100 Index trades in positive territory early Tuesday.
The pair’s technical outlook points to oversold conditions.
GBP/USD extended its slide in the Asian trading hours on Tuesday and touched its weakest level since March below 1.2100. The pair’s technical outlook points to oversold conditions in the near term. Considering how GBP/USD continued to push lower for several days despite staying in the oversold territory in late September, a technical correction could remain limited unless there is a convincing improvement in risk sentiment.

As the US bond sell-off picked up steam in the American session on Monday, the US Dollar (USD) gathered strength and forced GBP/USD to turn south. Additionally, the ISM Manufacturing PMI survey showed a noticeable improvement in the manufacturing sector’s activity, in addition to a further decline in input inflation and an expansion in employment in September, and allowed the USD to continue to outperform its rivals.
Pound Sterling price this week
The table below shows the percentage change of Pound Sterling (GBP) against listed major currencies this week. Pound Sterling was the weakest against the US Dollar.
Early Tuesday, the UK’s FTSE 100 Index opened in positive territory and was last seen rising 0.4% on the day, pointing to a slightly positive shift in market mood. Meanwhile, US stock index futures were up 0.2% at the time of press.

A bullish opening in Wall Street could cause the USD to lose interest and open the door for a rebound in GBP/USD. Investors, however, might want to see significant gains in US stocks to bet on a steady advance in the pair.

Later in the day, the US Bureau of Labor Statistics will release the JOLTS Job Openings data for August, which is expected to hold steady at around 8.8 million. In case this data comes in below 8.5 million and highlight a cooldown in the labor market ahead of Friday’s jobs report, the initial reaction could hurt the USD.

GBP/USD Technical Analysis
The mid-point of the descending regression channel aligns as immediate resistance at 1.2100. If the pair stabilizes above that level, 1.2150 (upper limit of the descending channel), 1.2175 (20-period Simple Moving Average) and 1.2200 (psychological level) could be set as next recovery targets.

In case GBP/USD fails to reclaim 1.2100, sellers could retain control of the pair’s action. In that scenario, 1.2050 (lower limit of the descending channel) could act as next support before 1.2000 (psychological level, static level).