Bearish View
Sell the GBP/USD and set a take-profit at 1.3150.
Add a stop-loss at 1.3300.
Time: 1-2 days.
Bullish View
Set a buy-stop at 1.3250 and a take-profit at 1.3350.
Add a stop-loss at 1.3150.
The GBP/USD pair declined on Monday morning as the number of COVID-19 cases in the UK continued. The pair also declined as the market reflected on the latest decisions by the Bank of England (BOE) and the Federal Reserve. It is trading at 1.3237, which is about 1% below the highest level last week.
UK Omicron Outbreak
The UK has emerged as one of the leading countries affected by the Delta and Omicron variants of the virus. On Sunday, the UK government confirmed more than 90,000 new Covid-19 cases, the highest level since the pandemic started. 12,000 of these cases were of the Omicron variant.
As a result, the Boris Johnson administration is under intense pressure from experts to impose new restrictions to curb the spread. In a statement, Chris Hopson, the head of the NHS said that new restrictions will be needed.
At the same time, Johnson is under pressure from his party and even conservatives. On Sunday, it was reported that Lord Frost, the Brexit minister, had decided to quit. Other ministers are considering quitting as Johnson’s approval rating declines.
These events are notable because of the actions by the Bank of England (BOE). After sounding cautious a few months ago, the bank came swinging last week and decided to hike interest rates by 0.25%. It also signalled that it will hike rates in the coming year.
It noted that higher interest rates were necessary in order to shield the country from higher inflation. Still, it is unclear whether higher rates will slow inflation because it has been caused by the ongoing supply chain challenges.
The GBP/USD is also falling after Joe Manchin said that he will not vote for Joe Biden’s Build Back Better plan. Without his vote, it means that the plan is doomed to fail.
GBP/USD Forecast
The four-hour chart shows that the GBP/USD pair has been under pressure in the past few days. The pair has managed and moved slightly below the 25-day moving average. This is a signal that bears are in control for now. At the same time, the pair’s MACD has formed a bearish crossover pattern while the Relative Strength Index (RSI) has been in a bearish trend.
Therefore, I suspect that the pair will likely keep falling as bears target the next key support level at 1.3150. This view will be invalidated if the price rises above 1.3300.
