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Bearish view
Sell the GBP/USD pair and set a take-profit at 1.3100.
Add a stop-loss at 1.3300.
Timeline: 1-2 days.
Bullish view
Buy the GBP/USD pair and set a take-profit at 1.3300.
Add a stop-loss at 1.3100.
The GBP/USD pair continued its recent downward trend and is wavering near its lowest level since April 6 this year. It was trading at 1.3187, down from last month’s high of 1.3656 as the US Dollar Index (DXY) continued its uptrend, reaching its highest point in over a year.
US Dollar Index Surge Continues
The GBP/USD pair continued its strong downtrend as the US Dollar Index (DXY) jumped to $101.40, its highest level since May 12. It has soared by over 5% from its lowest level this year.
The dollar jumped sharply as investors reacted to the recent Federal Reserve interest rate decision. Officials decided to leave interest rates unchanged between 3.50% and 3.75% in that meeting. They also signaled that they will hike rates latee this year.
Odds of higher rates have jumped after the recent US macro numbers. Inflation jumped to 4.2% in May, moving further away from the Federal Reserve’s target of 2%. US jobs continued doing well, with the economy adding over 172k jobs.
Another report showed that the manufacturing and services sectors continued doing well in June this year. The flash manufacturing PMI rose from 55.1 in May to 55.7 in June, higher than the sector median of 54.6. Similarly, the services PMI rose from 50.7 in May to 51.3 in June. Also, the composite PMI rose to 52.2, a sign that the economy continued doing well.
The GBP/USD pair is also falling because of the ongoing political situation in the UK, where the prime minister announced his resignation. As such, sterling will likely remain under pressure as investors assess the policies being advocated by Andy Burnham. A report showed that the UK manufacturing and services PMIs retreated to 48.7 and 53.1, respectively.
GBP/USD Technical Analysis
The GBP/USD pair has slumped in the past few months and is now hovering at a crucial support level. It is trading at 1.3196, a few points above the key support of 1.3163, its 1.3163.
The pair has dropped below the 50-day moving average of 1.3400. It is also slowly forming a bearish flag pattern, a common continuation sign in technical analysis.
The pair has also formed an inverted cup-and-handle pattern. Therefore, the pair will likely continue falling, potentially to the next key support level of 1.3100. This view will be confirmed if it drops below 1.3163.
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