Bearish View
- Sell the GBP/USD pair and set a take-profit at 1.300.
- Add a stop-loss at 1.3150.
- Timeline: 1-2 days.
Bullish View
- Set a buy-stop at 1.3125 and add a take-profit at 1.3200.
- Add a stop-loss at 1.3070.
The GBP/USD pair retreated sharply during the American and Asian sessions as investors reacted to a major warning about the UK and European economies. It declined to a low of 1.3072, which was the lowest level since March 16th this year.
UK Economy at Risk
The UK economy is facing significant challenges because of the ongoing crisis in Ukraine, according to the latest assessment by Andrew Bailey. Speaking at Brussels, the head of the Bank of England (BOE) said that the living standards of most Britons will decline substantially because of the rising energy crisis. He said that the situation will be worse than in the 1970s during the oil embargo.
Oil and gas prices have surged in the past few weeks and analysts believe that the situation could worsen in the coming months. For example, analysts at Goldman Sachs believe that oil prices will rise to above $150 per barrel this year. Other analysts see prices jumping to above $200, the highest level on record.
Bailey’s speech reflected the difficult situation it is currently in. To deal with the rising inflation, the bank has delivered three rate hikes. But it has also softened its tone on higher rates to reflect the uncertain outlook.
He insisted that it was necessary to tighten conditions even as the economic growth slowed. On Friday, data by the Office of National Statistics showed that retail sales declined unexpectedly in February. The headline sales fell by 0.3% as inflation jumped.
The GBP/USD pair also declined as American bond yields cooled down in the evening session. The 10-year and 30-year yields declined a few hours after they inverted. This was the first inversion of the yield curve in years and is a sign that investors expect a recession in the coming months.
GBP/USD Forecast
The GBP/USD pair has been under stiff pressure in the past few days as risks to the UK economy remain. The pair moved below the 23.6% Fibonacci retracement level. It also declined below the 25-day and 50-day moving averages and the important support level at 1.3200, which was the highest point on March 10.
The price has also formed a small head and shoulders pattern, which is a bearish sign while volume has been elevated. Therefore, the pair will likely keep falling as bears target the next key support level to watch will be at 1.300.