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Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.2500.
- Add a stop-loss at 1.2300.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 1.2335 and a take-profit at 1.2280.
- Add a stop-loss at 1.2500.
The GBP/USD exchange rate continued its comeback even as worries about the British economy continued. It jumped to a high of 1.2428 on Tuesday, the highest point since September 15th. The pair has risen by over 2.55% from the lowest point in October.
UK economic challenges remain
The UK’s economy is going through a rough patch, with inflation remaining stubbornly high. At the same time, its manufacturing and services is not growing, as was evidenced by last week’s weak PMI numbers from S&P Global.
On Monday, British Steel said that it would close its last two blast furnaces in the next three years. It will then replace it with a new plant, putting over 2,000 jobs at risk in the country. A few months ago, Tata Steel also said that it would close its two blast furnaces at Port Talbot.
Meanwhile, a study by a Bloomberg economist warned that the country was already in a recession. The study estimates that the UK economy contracted in Q3 and that it will do the same in the fourth quarter. The Office of National Statistics (ONS) will publish its GDP estimates on Friday.
The current GBP/USD pair rally is because of last week’s actions by the Federal Reserve and Bank of England (BoE). In its decision on Wednesday, the Fed left interest rates unchanged between 5.25% and 5.50%. It also left the door wide open for another rate hike.
However, most analysts believe that the bank will leave rates unchanged in its final meeting of the year. This is after the US published relatively weak jobs numbers on Friday and as the price of crude oil eased.
The BoE also left interest rates unchanged in its Thursday meeting. With the UK economy struggling, there is a likelihood that the bank will leave rates unchanged in the foreseeable future.
GBP/USD technical analysis
The GBP/USD pair has been in a strong uptrend in the past few weeks. It rallied to a high of 1.2428, the highest point since mid-September. The pair has moved above the descending trendline, which connects the highest swings since September 20th.
It has moved above the 23.6% Fibonacci Retracement level and the important resistance at 1.2333, the highest swing on October 11th. The Relative Strength Index (RSI) has pointed downwards.
Therefore, the pair will likely continue rising as buyers target the 50% retracement point at 1.2592.
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