Bearish View
- Sell the GBP/USD pair and set a take-profit at 1.1770.
- Add a stop-loss at 1.2020.
- Timeline: 1 day.
Bullish View
- Set a buy-stop at 1.2010 and a take-profit at 1.2110.
- Add a stop-loss at 1.1830.
The GBP/USD pair declined sharply in the overnight session as investors rushed to the safety of the US dollar. The price declined to a multi-month low of 1.1892, which was substantially lower than last week’s high of 1.2331.
USD as Safe Haven
The GBP/USD pair declined sharply as the US dollar strength continued. The US dollar index rose to a multi-decade high of $106.40 as demand for the greenback continued. This rally happened as concerns about the health of the global economy continued.
For example, on Tuesday, Andrew Bailey, the head of the Bank of England (BOE) warned that the country’s economy was deteriorating at a faster pace than expected. He noted that the wage growth was still slow even as inflation jumped to the highest level in four decades. This explains why consumer confidence has tumbled in the past few months.
Therefore, the BOE is under intense pressure as the country goes through its first stagflation in decades. The bank has opted to continue with the aggressive rate hike policy while risking a recession.
Indeed, data published on Tuesday showed that the country’s business output declined in June. Services PMI dropped to 54.3 while the composite PMI fell to 53.7. While these numbers are above 50, they signal that activity is slowing. Other recent data from the UK like retail sales and house prices ave been disappointing.
The next key catalyst for the GBP/USD pair will be the upcoming minutes by the FOMC. During that meeting, the members voted to hike interest rates by 0.75% in a bid to fight inflation. Therefore, these minutes will provide more color about the deliberations during the committee.
The Bureau of Labor Statistics will publish the latest job openings data. Analysts expect the numbers to reveal that the country’s openings rose fell to 11 million.
GBP/USD Forecast
The four-hour chart shows that the GBP/USD pair made a strong bearish breakout in the overnight session. It dropped and tested the first support of Woodies pivot point. The pair then moved below the 25-day moving average while the Relative Strength Index has pointed downwards. It also declined below the important support level at 1.1943, which was the lowest point on June 14th.
Therefore, the pair will likely continue falling as sellers target the second support at 1.1770. A move above the resistance at 1.200 will invalidate the bearish view.
