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Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2350.
- Add a stop-loss at 1.2575.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.2450 and a take-profit at 1.2525.
- Add a stop-loss at 1.2380.
The GBP/USD exchange rate dropped to the lowest level since June 6th as the US dollar index (DXY) and crude oil prices jumped. The pair slipped to a low of 1.2382 ahead of the upcoming UK inflation numbers and Federal Reserve decision.
UK inflation and Fed decision
The GBP/USD pair retreated after the strong US inflation data. According to the Bureau of Labor Statistics (BLS), the headline consumer price index (CPI) rose from 3.2% in July to 3.7% in August. It was the second straight month that inflation rose.
Economists believe that inflation could continue rising in the coming months since crude oil prices are rising. Brent and West Texas Intermediate (WTI) rose to $93 and $90, respectively.
Another catalyst for inflation will be the ongoing UAW strike that has seen the big 3 companies reduce their production. The impact is that the supply of new cars and trucks will drop, leading to higher used car prices.
Further, the ongoing traffic jam in the Panama Canal will lead to higher prices. The jam is happening because of the falling water supplies in the canal. As a result, the number of ships allowed to pass per day is falling. Ships are also being asked to offload some of their cargo.
The next key important GBP/USD news will be the upcoming UK consumer inflation data. Economists believe that the country’s inflation dropped slightly during the month but remained stubbornly above the 2% target.
The GBP/USD pair will also react to the upcoming Fed and Bank of England decisions on Wednesday and Thursday, respectively. Economists have a mixed view of the two central banks.
Some analysts believe that the Fed will decide to deliver a hawkish pause. Others expect it to hike by 0.25% and pledge to leave them there for a while. In the UK, the BoE’s governor has hinted that the bank will leave rates unchanged.
GBP/USD technical analysis
The GBP/USD pair has been in a strong bearish trend in the past few days. On the daily chart, the pair flipped the important support at 1.2657, the highest level on May 9th. Sterling also dropped below the 50-day and 200-day moving averages while the MACD has moved below the neutral point.
The Relative Strength Index (RSI) has continued falling and is nearing the oversold level. Therefore, the pair will likely continue falling as sellers target the key support level at 1.2250.
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