Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2600.
- Add a stop-loss at 1.2680.
- Timeline: 1-2 days
Bullish view
- Set a buy-stop at 1.2650 and a take-profit at 1.2700.
- Add a stop-loss at 1.2600.
The GBP/USD exchange rate remained in a tight range on Monday ahead of the upcoming UK election and US nonfarm payrolls (NFP) data. It was trading at 1.2645, a few pips above last week’s low of 1.2615.
UK election and US NFP data
The GBP/USD pair moved sideways after the US published encouraging Personal Consumption Expenditure (PCE) inflation data. In a report, the Bureau of Labor Statistics (BLS) showed that the headline and core PCE figures softened to 2.6% in July.
On a month-on-month basis, the PCE dropped for the first time in six months, raising the possibility that the Federal Reserve will start to cut interest rates later this year. Still, on a YoY basis, the numbers remained above the bank’s target of 2.0%.
Looking ahead, the biggest catalyst for the GBP/USD pair this week will be the upcoming UK election. Recent polls show that the country will see the first change in party leadership in over 13 years, with Keir Starmer becoming the next prime minister.
It is unclear how the party will govern and the policies it will implement considering that the government carries substantial debt. Starmer has promised to improve the country’s relationship with the European Union, boost government investments on energy, and invest in the NHS.
The GBP/USD pair, which has dropped sharply ahead of the election could bounce back after it happens.
The other big catalyst will be Friday’s non-farm payrolls (NFP) data from the United States. These numbers will provide more details about the US economy and give hints on when the Fed will start cutting interest rates.
Economists expect that the Fed will maintain interest rates steady for a while and then start cutting in December.
GBP/USD technical analysis
The GBP/USD pair has been in a steady downward trend in the past few weeks. It has dropped from last month’s high of 1.2860 to 1.2650. The pair has also formed a descending channel and moved to the 38.2% Fibonacci Retracement point.
It has also remained slightly below the 25-period and 50-period Exponential Moving Averages (EMA) and the support at 1.2676, its lowest point on May 24th. The pair will likely continue falling ahead of the election and then bounce back. The next key level to watch will be at 1.2600.
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