Bearish View
- Set a sell-stop at 1.2300 and set a take-profit at 1.2200.
- Add a stop-loss at 1.2400.
- Timeline: 1-2 days.
Bullish View
- Set a buy-stop at 1.2415 and a take-profit at 1.2500.
- Add a stop-loss at 1.2350.
The GBP/USD pair attempted to crawl back during the American session as the US dollar continued strengthening. The pair rose to a high of 1.2347, which is about 0.68% above Monday’s low of 1.2268. This level was the lowest level in more than two years.
Sterling Downtrend Continues
The GBP/USD pair has been in a strong bearish downward trend in the past few days as investors worry about the health of the UK economy and the strong US dollar.
Recent data show that the UK Economy is struggling as inflation ries. For example, recent data showed that the economy barely grew in the first quarter of the year. Inflation has also soared to the highest level in years while real earnings have moved to the negative level.
There are also worries that the overheating housing sector could see diminishing demand as interest rates rise. The main challenge for the UK mortgage market is that it is increasingly short-term unlike other countries like the US and Germany. Most people in the UK prefer mortgage periods of less than five years, meaning that the situation could worsen in the coming months as rates rise.
The GBP/USD pair has also declined because of the rising US dollar. The dollar index has risen to the highest level since 2002 as investors continue reflecting on the hawkish Federal Reserve. The bank announced that it will continue hiking interest rates in the coming months.
While the Bank of England implemented its fourth interest rate hike since December, the governor warned that the country will likely go through a recession in the coming year.
With no data scheduled from the US and the UK, investors will continue focusing on the upcoming US inflation data. The numbers will provide signs about whether inflation has peaked after soaring to the highest point in over 40 years.
GBP/USD Forecast
The GBP/USD pair has been in a strong bearish trend in the past few months. On the four-hour chart, the pair has moved below the 25-day and 50-day moving averages. It has also moved slightly below the important support level at 1.2415, which was the lowest level since April 28th.
Therefore, the pair will likely keep falling since it has formed a break and retest pattern by retesting the resistance at 1.2414. Therefore, the pair could soon drop to 1.2200.
