Bearish View
- Sell the GBP/USD pair and set a take-profit at 1.3000.
- Add a stop-loss at 1.3200.
- Timeline: 1-2 days.
Bullish View
- Set a buy-stop at 1.3150 and a take-profit at 1.3230.
- Add a stop-loss at 1.3100.
The GBP/USD pair dropped below a key support level as concerns about the state of the UK economy as the crisis in Ukraine continues. The pair is trading at 1.3108, which was the lowest level since November 2020. It has fallen by more than 8% from the highest point in 2021.
UK Energy Costs Soar
Energy is an important part of the UK economy. In the past few months, the overall cost of energy prices has been in an upward trend as concerns about supply and demand remain. For one, the OPEC+ cartel has adopted a strict policy of gradually increasing supplies even as global demand rise at a faster pace.
The situation has worsened in the past few weeks as Russia increases its focus on Ukraine. The country’s military forces have killed thousands of people and forced most of them to become refugees. In their response, most western countries have added the toughest sanctions ever.
On Tuesday, the Boris Johnson administration announced new measures to sanction the country. Its energy companies will now be barred from importing Russian crude oil. In the past week, many refiners have been self-sanctioning by refusing to take the country’s oil.
Therefore, there are concerns about the state of inflation in the UK. Recent data showed that inflation surged to over 5% in January. Therefore, since energy is an important part of the country’s inflation calculation, there is a likelihood that prices will continue to accelerate.
Therefore, this performance will be a difficult thing for the Bank of England (BOE), which needs to hike rates while preventing a recession. The bank has already raised interest rates but their impact on inflation will be limited.
The GBP/USD has also sold off because of the ongoing demand for safe-havens. The US dollar and gold have risen while US stocks have retreated sharply.
GBP/USD Signal
The daily chart shows that the GBP/USD pair has been in a strong downward trend in the past few weeks. And this week, the pair managed to move below the key support at 1.3167, which was the lowest level in 2021.
The pair has moved below the 25-day and 50-day moving averages while the Relative Strength Index (RSI) has moved below the oversold level. Therefore, the pair will likely continue falling as bears target the next key support at 1.3000.
