Bearish View
- Sell the GBP/USD pair and set a take-profit at 1.2050.
- Add a stop-loss at 1.2250.
- Timeline: 1-2 days.
Bullish View
- Set a buy-stop at 1.2200 and a take-profit at 1.2315.
- Add a stop-loss at 1.2135.
The GBP/USD price retreated in the American and Asian sessions as volatility resumed in the market. The pair dropped to a low of 1.2200, which was lower than this week’s high of 1.2325.
Volatility Resumes
The GBP/USD pair retreated as volatility bounced back. The closely-watched CBOE volatility index rose by more than 5% in the American session. The jump coincided with a sharp decline of American equities as the Dow Jones, Nasdaq 100, and Russel 2000 dropped by more than 1.2%.
The dollar strengthened after a series of mixed economic data published on Tuesday. The Commerce Department said that the American trade deficit narrowed slightly in May. But it remained above $100 billion for the second straight month.
Meanwhile, housing numbers showed that home prices remained at elevated levels in May. The closely watched Case-Shiller index rose by 21.3% year-on-year and by 2.3% on a MoM basis. While this growth slowed, home prices remain at elevated levels in the US.
As a result, data by Conference Board revealed that the country’s consumer confidence dropped to the lowest level in 9 years. Consumers are increasingly worried about the rising inflation and the decline in their 401(k) plans amid a strong stock sell-off.
Still, analysts believe that the Federal Reserve will continue hiking interest rates in the coming months. The bank is facing the tough balancing act of hiking interest rates without causing a recession. Analysts believe that a recession is highly likely.
The GBP/USD pair will react to central bankers’ speeches. Bank of England’s Andrew Bailey will talk and possibly shed more light on what his committee will do in the coming months. Similarly, Jerome Powell will also talk and possibly reiterate that the bank will keep hiking rates. It will also react to the latest US GDP data.
GBP/USD Forecast
The GBP/USD pair has been in a consolidation phase in the past few days. It has remained between the key support and resistance levels at 1.2182 and 1.2316. At the same time, the pair remains slightly below the 25-day moving average while Bollinger Bands have narrowed. The pair’s Relative Strength Index (RSI) has moved slightly below the neutral point at 50.
Therefore, there is a possibility that the pair will have a bearish breakout on Wednesday. If this happens, the next key support level to watch will be at 1.2050. If the consolidation continues, the pair will retest the upper side of the channel at 1.2315.
