Bearish View
- Sell the GBP/USD pair and set a take-profit at 1.2900.
- Add a stop-loss at 1.3100.
- Timeline: 1-2 days.
Bullish View
- Set a buy-stop at 1.2990 and a take-profit at 1.3100.
- Add a stop-loss at 1.2900.
The GBP/USD pair wavered after Rachel Reeves delivered a her first budget and after the US released relatively strong GDP numbers. The pair was trading at 1.1985, a few points above last week’s low of 1.2900.
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UK Budget and US Economic Data
The GBP/USD pair moved sideways after Reeves announced a series of tax hikes and more government spending and borrowing.
In total, her tax increases are expected to raise $40 billion, while the government is expected to borrow £28 billion a year.
She hopes that these funds will be used to fund the NHS and other priorities like clean energy investments.
The risk, however, is that these hikes will lead to more job cuts and weak investments in the country. For example, there is a high probability that many wealthy Britons will shift some of their assets to low-tax countries like Monaco and Switzerland.
The GBP/USD pair also reacted to the mixed economic data from the United States. A report by ADP showed that the private sector created over 233k jobs in October, higher than the 159k created a month earlier. These jobs were higher than the median estimate of 110k.
Another report showed that the economy expanded by 2.8% in the third quarter after growing by 3% in the previous month. This is a sign that the economy is doing modestly well this year. Helped by robust spending.
The next key GBP/USD news will be the upcoming US PCE report, followed by nonfarm payrolls data scheduled on Friday. These numbers will help the Fed decide what to do in its meeting next week.
The pair will also react to the upcoming US election, which has pushed hedging cost to the highest level in months.
GBP/USD Technical Analysis
The GBP/USD pair has pulled back from the year-to-date high of 1.3435 in September to the important psychological point at 1.3000. It has retreated below the 50-day moving average and is hovering at the 100-day average point.
The pair has moved between the 38.2% and 23.6% Fibonacci Retracement points. Also, it remains slightly above the ascending trendline that connects the lowest swings since April this year.
Therefore, the outlook for sterling is bearish as as traders eye the 50% retracement point at 1.2735. This view will be confirmed if the pair moves below the ascending trendline.
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