GBP/USD bears stacking up along six-week lows, more downside to come?

Currently, GBP/USD is trading at 1.2277, down -0.06% on the day, having posted a daily high at 1.2308 and low at 1.2259.

GBP/USD is walking along the bottom of the recent downtrend when the pound dropped to a six-week low as the news that Scotland prepares for new referendum/Brexit debate weighs on sterling. 

Brexit: Despite defeat, May set to trigger Article 50 before end of March - Danske Bank 

At the same time, the dollar is strong and supported by Trump's bullishness and hawkish Fed speakers in recent sessions as the market prices a March hike back in and a further two hikes for 2017. While the market may need to get used to the sudden commitments of the Fed and a faster pace of hiking, there could be a tone of caution around the dollar in respect to its valuation, as explained by analysts at Bank of Tokyo Mitsubishi, "The US dollar is already significantly overvalued having strengthened sharply over the last six years." On a technical basis, the analysts explained that the dollar may find a clearing through the woods beyond 104.00. 

• US dollar strength could play catch up with widening yield spreads - BTMU
• Scope for further US dollar upside is more modest now - BTMU

In respect to data, "The construction sector activity in the UK economy increased its pace of expansion and unexpectedly rose in the month of February, despite cost pressures hovering at an eight-month high, a fresh report from Markit Economics showed on Thursday," - UK construction PMI sees modest rise in Feb, beats estimates

"The resilience of house prices post-Brexit (by most measures, anyways) supports continued expansion in the sector, if at a somewhat slower pace than last month," explained analysts at TD Securities.

In respect of the cross, Kit Juckes, analyst at Societe Generale explained that EUR/GBP has bounced off its 200day average and the bottom of an ever-tightening channel. "Visually, it gives the impression that it must break out soon. Maybe next Wednesday's Budget will be the catalyst." 

GBP/USD levels

GBP/USD is better offered below 1.2340 and aims for 1.2230 (12th Jan highs) on a break of 1.2360 recent lows. Below there, 1.2020 and Jan and yearly lows at 1.1988 could be in play again. "We expect continued pressure on 1.2265/75 near-term and for the GBP to extend the retracement back to the Jan low (1.1993) in the next few weeks. Sell minor GBP rallies," argued analysts at Scitoabanl. Meanwhile, RSI is mixed with a bearish bias, but a correction through 1.2340 would target 1.2405 and 1.2445.