Bullish View
- Buy the GBP/USD pair and add a take-profit at 1.2200.
- Add a stop-loss at 1.2000.
- Timeline: 2 days.
Bearish View
- Set a sell-stop at 1.2090 and a take-profit at 1.200.
- Add a stop-loss at 1.2200.
The GBP/USD price dropped sharply during the overnight session as the US dollar strength continued and the outlook of the UK economy dimmed. The pair dropped to a low of 1.2117, which was the lowest level since June 16th. It has dropped by almost 2% in the past two days.
UK Economic Outlook
The GBP/USD price came under intense pressure ahead of the upcoming UK GDP numbers that are scheduled for Thursday morning.
Economists expect the final estimate to show that the country’s economy expanded by 0.8% on a QoQ basis and by 8.7% on a YoY basis. This recovery is mostly because the UK reopened its economy in the first quarter.
However, this recovery has faded in the second quarter as inflation remains at an elevated level. Data published recently revealed that the country’s economy contracted in the past two straight months.
Meanwhile, the labor market is going through significant challenges as inflation soars. Last week, rail workers went in a three-day strike as they protested low wages. The situation could get worse in the coming months as more workers protest. Staff at Royal Mail and Avanti West Coast voted to go on a strike over the summer.
The GBP/USD pair dropped after the extremely hawkish statement by Jerome Powell and Andrew Bailey. In a statement at a forum planned by the ECB, Jerome Powell said that the bank will stick to its hiking plans even though it risks pushing the country to a recession.
BOE’s Andrew Bailey shared the sentiment as he hinted that the bank will continue tightening in a bid to fight inflation. Consumer prices have surged to a multi-decade high of 9.1% because of the surging oil and gas prices. The GBP/USD pair will react to the latest inflation data from the US.
GBP/USD Forecast
The GBP/USD sell-off gained steam amid a strong US dollar. It dropped to a low of 1.2100, which is slightly above the second support of the standard pivot point. The pair has also crashed below the 25-day moving average and the Ichimoku cloud.
Oscillators have also continued falling, with the Relative Strength Index moving below the oversold level. Sterling is below the 23.6% Fibonacci retracement level. Therefore, while the overall trend is bearish, the pair will likely have a dead cat bounce as some traders buy the dip. If this happens, the next key level will be the first resistance at 1.2180.
