Sellers ignore oversold conditions after BoE Governor Bailey’s remarks

• GBP/USD remains under strong bearish pressure and falls towards 1.3100.
• BoE Governor Bailey’s comments sparked a sell-off in sterling on Thursday morning.
• The short-term technical outlook for the pair indicates oversold conditions.

GBP/USD came under strong bearish pressure and slipped towards 1.3100 in European morning on Thursday, touching its weakest level in three weeks in the process. The short-term technical outlook indicates oversold conditions, but the pair may struggle to make a decisive correction.

The US dollar held on to its strength and forced GBP/USD to stay on the back foot on Wednesday after data from the Automatic Data Processing (ADP) showed private sector employment rose by 143,000, beating expectations market of 120,000.

In an interview with The Guardian newspaper, Bank of England Governor Andrew Bailey said they may become “a bit more active in cutting interest rates if there is still good news on inflation”. Those comments sparked a selloff in the pound in Thursday’s early European session. Reflecting the general weakness of the GBP, the EUR/GBP pair rose more than 1% on the day.

Later in the day, the US economic calendar will include weekly initial jobless claims data and September ISM Services PMI data. Markets expect first-time jobless claims to reach 220,000 in the week ending September 28, up slightly from 218,000 the previous week. A print at or below 200,000 could push the USD higher and further hurt the pair. On the other hand, an unexpected dip below 50 in the headline ISM Services PMI could raise concerns about an economic slowdown in the US and make it difficult for the USD to outperform its rivals.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart dipped below 20 on Thursday morning, reflecting oversold conditions for GBP/USD. If the pair makes a technical correction, 1.3175 (61.8% Fibonacci retracement of the last uptrend) could be seen as a first resistance before 1.3200, where the 200 simple moving average (SMA) is located of periods.

On the downside, 1.3100 (Fibonacci 78.6% retracement) could be seen as the next support before 1.3050 (static level) and 1.3000 (static level).