On September 2nd, forex analyst Gary Howes wrote that if the US non farm payroll data for August is better than expected, the upward trend of GBP/USD may face a greater setback this week. A prediction model from a week ago showed that the pound could further decline in the coming days, with the pound falling below 1.31 against the dollar this week and then dropping to 1.29 within three weeks.

GBP/USD hit a high of 1.3266 last week, but after several consecutive days of gains, technically speaking, the pound has entered an overbought state. Subsequently, the pound fell back to the level of 1.31 at the beginning of the new week.

The Relative Strength Index (RSI) has fallen below 70, indicating that overbought conditions have dissipated. However, another data shows that before the release of this week's non farm payroll report, the market was clearly bearish on the GBP/USD exchange rate. If the US non farm payroll data for August is strong, it will increase the risk of further pullback of the pound against the US dollar.

Research on charts shows that previous pullbacks in the current cycle are often quite significant: the GBP/USD pullback lasted for three weeks from July to August, while the June pullback lasted for two weeks.

From the daily chart, the 50 day moving average is at the receding position of the past two retracements, which means that the current retracement level may be as low as 1.29.

Tanmay Purohit, a technical analyst at Societe Generale, said, "We cannot rule out the possibility of a short-term pause in the GBP/USD exchange rate, but support levels around 1.2900 should alleviate downward pressure

However, he reminds us that the GBP/USD is in a medium-term upward trend, and a pullback is still seen as a temporary reversal phenomenon.

Purohit pointed out, "Holding at 1.2900 may indicate the continuation of the GBP/USD uptrend. The next potential upward targets are around 1.3320-1.3360 and 1.3580

Ultimately, the duration of the GBP/USD pullback will depend on this week's US data, which will determine the magnitude of the Fed's September rate cut. If the US non farm payroll report is stronger than expected on Friday, the possibility of a 50 basis point interest rate cut may further decrease, which could further boost the US dollar and put pressure on the pound against the US dollar.

The market expects non farm employment to reach 163000 in August, higher than the 114000 in July.

Daily chart of GBP/USD