GBP/USD Outlook: Bears Targeting 1.20 as Risk Aversion Grows

• GBP/USD price finds selling pressure as China’s situation gets worse.
• Russia and Ukraine continue to augment tension, intensifying further risk aversion.
• US dollar may experience bearishness due to easing US yields.

The GBP/USD outlook is mildly bearish as the pair faces risk aversion arising from the deteriorating pandemic situation in China.

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Early Thursday in London, GBP/USD fell to 1.2025 after consolidating intraday gains for the first time in three days. COVID-19 and tension between Russia and Ukraine may be to blame for the cable pair’s recent weakness. US Treasury yields fell, however, causing prices to fall.

British officials recently announced COVID testing requirements for Chinese travelers as the virus circulates in Dragon Land, but Beijing cancels ‘zero Covid-19’.

Meanwhile, Russia’s refusal to make peace with Ukraine without an additional territory treaty and the escalation of the Kherson war is depressing market sentiment. Kyiv was rocked by explosions recently after a Ukrainian diplomat warned of a missile launch.

In spite of this, mixed US data and a lack of hawkish Fed rhetoric appear to be protecting GBP/USD buyers at year-end. The Richmond, Fed December manufacturing index eased to 1.0 from -4.0 compared to -9.0 in October, while pending US home sales declined to -37.8%y/y from -36.7% expected.

This backdrop caused the US 10-year Treasury yield to fall 2.6 basis points to 3.86% at press time after hitting its highest level since October 19. In addition, although Wall Street closed lower, S&P 500 futures remain undecided due to bearish bond coupons.

Even though the US dollar could be under pressure due to a likely surge in initial jobless claims, an unfavorable calendar and sentiment could lead to a bearish trend in GBP/USD.

GBP/USD price technical outlook: Sellers facing hurdle at 1.20

The GBP/USD price took a U-turn from recent swing highs above the 1.2100 area. The pair is now treading below the key 20-period SMA on the 4-hour chart. Meanwhile, the 50-period and 200-period SMAs are potentially making a bearish crossover.

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However, the key support at 1.2000 continues to tease the sellers. In case of a bearish breakout, the pair may experience a great fall toward the next support at 1.1900. The market lacks any momentum amid Christmas week. So, it is prudent to wait for a clear action to grab a trading opportunity.

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