Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2900.
- Add a stop-loss at 1.3150.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.3075 and a take-profit at 1.3150.
- Add a stop-loss at 1.2985.
The GBP/USD exchange rate continued its downtrend as odds of a more dovish Federal Reserve eased after the recent economic data and minutes. It slumped to a low of 1.3012, its lowest level since September 11.
US and UK economic data
The GBP/USD pair has been in a strong downward trend after the US published mixed economic data.
The first report showed that the labor market improved in September. The unemployment rate dropped to 4.1%, and the economy created over 254,000 jobs, the highest reading in months.
Another report showed that inflation dropped at a slower pace than expected. The headline Consumer Price Index (CPI) retreated from 2.5% in August to 2.4% in September. Core inflation, which excludes the volatile food and energy prices, remained at 3.2%.
Fed minutes showed that some officials were divided about interest rate cuts in the last meeting. Some analysts wanted to cut interest rates by 0.25%, while most of them supported a 0.50% cut.
Therefore, there are doubts about whether the bank will cut rates in the next meeting in November.
The GBP/USD pair also retreated after last Friday’s UK GDP data. According to the Office of National Statistics (ONS), the economy returned to growth in August after contracting for two consecutive months.
The next key data to watch will be Tuesday’s jobs report followed by the consumer and producer inflation scheduled on Wednesday.
According to Investing, economists expect the inflation report to show that the headline CPI retreated from 2.2% in August to 1.9% in September. Core inflation is also expected to drop from 3.6% to 3.4%.
If these numbers are accurate, they mean that the Bank of England will have an incentive to cut rates in the next meeting.
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GBP/USD technical analysis
The GBP/USD exchange rate has been in a strong downtrend in the past few days as the odds of more rate cuts eased. It has dropped from 1.3436 in September to 1.3000, its lowest point since September 11.
The pair has dropped below the 50-day and 25-day Exponential Moving Averages (EMA), which are about to form a bearish crossover. It has also moved slightly below the 23.6% Fibonacci Retracement level.
The two lines of the MACD have moved below the zero line, while the Relative Strength Index (RSI) has moved below the neutral point at 50. Therefore, the pair will likely continue falling as traders target the 38.2% retracement point at 1.2900.
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