Bearish view
Sell the GBP/USD pair and set a take-profit at 1.3100.
Add a stop-loss at 1.3350.
Timeline: 1-2 days.
Bullish view
Buy the GBP/USD pair and set a take-profit at 1.3350.
Add a stop-loss at 1.3100.
GBP/USD pair slumped to its lowest level since July 1 as the US dollar comeback gained momentum. It dropped to 1.3250, down 3.12% from its highest point in August this year. This retreat may continue as odds that the Federal Reserve will hike interest rates later this year rise.
Sterling retreated after S&P Global published the latest manufacturing and services PMI data on Wednesday. The report showed that the manufacturing PMI rose from 51.7 in August to 52 in September. The services PMI figure dropped from 52.5 to 51.7, while the composite figure fell to 51.7. These numbers mean that the UK economy is still growing this year.
Another report showed that the US economy did much better this month. The manufacturing PMI rose from 53.9 in August to 57 in September, while the services figure rose from 56.5 to 58.7. As a result, the composite figure rose to 58.4, a sign that the economy is still doing well despite the ongoing inflation issues.
The pair also slumped as investors reacted to the rising gasoline and diesel prices. Gasoline prices jumped to $4.47, while diesel soared to $6.5, a record high. Soaring energy prices mean that inflation will likely remain at an elevated level. As a result, there is a likelihood that the Fed will hike interest rates again.
The Fed decided to hike interest rates by 0.25% last week, with officials hinting that they will hike again later this year.
There will be no major macro data from the United States and the UK today. As such, traders will focus on the upcoming meeting between the Donald Trump and Xi Jinping in Washington.
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GBP/USD Technical Analysis
The daily chart shows that the GBP/USD pair has slumped in the past few days, moving from a high of 1.3677 to the current 1.3232. The pair has already slumped below the 50-day and 200-day moving averages. It has also dropped below the important support level of 1.3275, its lowest level in July this year.
The Relative Strength Index (RSI) has plunged to the oversold level of 25. Also, the Average Directional Index (ADX) has jumped, a sign that the downward trend is continuing.
Therefore, the path of least resistance for the pair is 1.3100. On the flip side, there is a risk that the pair will rebound as investors start to buy the dip.
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