GBP/USD retreats towards 1.2000 on sluggish sentiment, US NFP, Downing Street eyed

• GBP/USD reverses early Asian session gains amid latest blow to risk appetite.
• News of attack on ex-Japanese Prime Minister blew sentiment of late, anxiety over UK PM haunt also favor sellers.
• Receding fears of recession, mixed US data and UK PM Johnson’s resignation previously recalled buyers.

GBP/USD reverses early Asian session gains while taking offers to renew intraday low near 1.2020 heading into Friday’s London open. The cable pair’s latest pullback could be linked to the US dollar’s rebound amid the fresh blow to the risk appetite, as well as the market’s cautious mood ahead of the US employment report for June.

“Japan's former Prime Minister Shinzo Abe is showing no vital signs,” per the latest update on the Japanese issue from Reuters. “Ex-prime minister of Japan Abe is reportedly unconscious and unresponsive, and is in cardiac arrest,” said Kyodo news. The news previously reported that the former Japanese leader was shot in the chest and rushed to the hospital.

The news drowned the Treasury yields and pushed the 10-year US benchmark towards posting a 0.80% intraday loss, down three basis points (bps) to 2.978% at the attest. In doing so, the key bond coupons print the first daily loss in three and help the riskier assets, like the US dollar to recover early-day losses.

It’s worth noting, however, that the S&P 500 Futures drops 0.35% intraday while Japan’s benchmark equity gauge fails to extend the initial gains and retreats to 26,664, up 0.65% by the press time.

That said, the US Dollar Index (DXY) picks up bids to 107.09 while reversing the initial losses around the 20-year high. The greenback gauge took a U-turn from the multi-day top on Thursday as mixed US data joined receding fears of economic slowdown, mainly due to Fed and Bank of England (BOE) policymakers’ attempts to talk down the recession.

In addition to the USD pullback, the GBP/USD pair buyers also cheered the UK PM Boris Johnson’s resignation from the post of the UK Conservative Party Leader, after multiple political quits and a strong push from the cabinet. The action gives rise to a sigh of relief among the rebels and assures an absence of much political damage. However, the search for a successor and a naïve cabinet, with multiple new appointments, keep the risk-on mood challenged.

Hence, the GBP/USD traders should pay attention to UK politics for immediate directions. However, US employment numbers for June and recession headlines will be more important to watch for fresh impetus. The forecast suggests that the headlines Nonfarm Payrolls (NFP) will post the lowest monthly increase in jobs since April last year, by easing to 268K from 390K for June while the Unemployment Rate is likely to stay unchanged at 3.6% for the said month.

Also read: Nonfarm Payrolls Preview: Three dollar-positive scenarios, only one negative one

Technical analysis

GBP/USD remains inside a two-month-long falling wedge bullish chart pattern, recently flirting with the weekly resistance line around 1.2030.

That said, the quote’s rebound from the stated bullish formation’s support line, coupled with an improvement in the RSI (14), favor buyers targeting the 1.2155-60 key hurdle, including the wedge’s resistance line, also nearing the 20-DMA.

Meanwhile, pullback moves may take a breather near the 1.2000 psychological magnet before revisiting the recent multi-month low of 1.1876.