Keep an eye on the 10 year note yields more than anything else, as it could guide you as to whether or not the dollar or the pound becomes more attractive in the short term.

• The GBP/USD currency pair fell a bit on Friday to close out the week on its back foot.
• Ultimately, we should take a look at this through the prism of fading every short-term rally that we can.
• The 1.20 level underneath is an area where we see a lot of interest, due to the fact that it is a large, round, psychologically significant figure.
• If we break down below there, then it’s likely that we could go back down to the lows of the 1.18 level.

Shorting Opportunities Likely Ahead

The market breaking above the 1.2250 level could open up the possibility of a move to the 1.24 level. Ultimately, the market is likely to see a lot of noisy behavior, but that should be expected due to the fact that the interest rate markets are all over the place as well. Keep in mind that the market is in a longer-term downturn, so one would have to assume that sooner or later we get an opportunity to start shorting again.

The 1.24 level is a major resistance barrier from intermediate time frames, so breaking above that does make a statement. However, I need to see this market take out the 1.26 level to change the overall attitude, and I think it is probably a scenario where any rally gets looked at with suspicion, and I’d be more than willing to pay those rallies as the opportunity to pick up US dollars “on the cheap.” Remember, it was not long ago that the Bank of England raised interest rates by 50 basis points, but then also stated that the UK was more likely than not going to end up in a recession.

The 50-day EMA offers a little bit of intrigue to this area, but we have sliced through it enough times in the last couple of weeks that I think it’s just more or less showing that the market is confused. This is a scenario where the interest rates in America will continue to outperform the United Kingdom, so I think it’s probably wise to keep an eye on the 10 year note yields more than anything else, as it could guide you as to whether or not the dollar or the pound becomes more attractive in the short term.

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I think we will continue to see more of a “fade the rally” market if we don’t break down directly.

• The GBP/USD currency pair rallied initially on Tuesday but gave back gains in the same general vicinity where we had seen selling pressure on Monday.
• Furthermore, the 50-Day EMA sits just above these two shooting stars, so it suggests the me that we are going to continue to see plenty of selling pressure overall.

CPI Numbers to Bring Noise

The 1.20 level underneath is significant support, and of course is a large, round, psychologically significant figure. In that area, I would anticipate that we should see a certain amount of support, as well as psychology, come into the picture. The fact that Wednesday is the CPI number coming out of the United States does suggest that we could hear quite a bit of noise, and perhaps a little bit of clarity when it comes to the future direction of the Federal Reserve. Ironically, the Federal Reserve has been telling people for a while that they are going to be extraordinarily aggressive to fight inflation, even though the markets have been arguing this point with the Fed.

Once we get the CPI number that comes out during the day on Wednesday, it’s possible that we either get a number that is hotter than anticipated or one that comes in under. If it’s hotter than anticipated, it’s likely that the US dollar will strengthen due to the perception of a more hawkish Federal Reserve is more likely than not going to be positive for the greenback. Core CPI month over month is anticipated to come out of 0.5%, so anything bigger than that will almost certainly send this pair lower.

What is also worth noting is that the Bank of England has already stated that they are expecting England to go into a recession, so the British pound will probably continue to be a bit soft as a result. Either way, this is a market that has been drifting for a while, and down to the lower left-hand corner of the chart. I think we will continue to see more of a “fade the rally” market if we don’t break down directly. If that were to be the case, it should be thought of as offering value for the US dollar. Either way, I have no real interest in buying the British pound until we break above the 1.26 level.

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The market is likely to be one in which you need to pay close attention to short-term moves, but still favor the downside overall as the US dollar is by far the strongest currency in the world.

• The GBP/USD currency pair initially tried to rally Monday but gave back the gains rather quickly.
• By doing so, it suggests that the market is going to test the 1.20 level underneath, which is a large, round, psychologically significant number that a lot of people will have to pay close attention to. It is also an area that has seen support previously, so if we were to break down through it, that could kick off even more selling pressure.

UK Recession Likely to Cause Noise

If we were to break down below the 1.20 level, the market is likely to go down to the 1.18 level. The 1.18 level has offered a significant amount of support, so breaking down below there opens up the bottom for the British pound. On the other hand, the market could turn around and try to take out the 1.22 handle. If it does, that would be a very bullish sign, perhaps opening up a move to the 1.23 level. All things being equal, this is a market that I think is going to continue to be noisy, due to the fact that the Bank of England has just stated that the United Kingdom is almost certainly going to head into recession. That is not good obviously, and ironically, so is the United States.

That being said, the market is likely to continue to see a lot of demand for US dollars, especially if they start to jump into the bond market in order to protect trade accounts in what is a very rough economic situation. Ultimately, I think that rallies will continue to be sold into, so it’s difficult to get bullish anytime soon. In fact, it’s not until we break above the 1.26 level that I would think we could get beyond in order to change the trend. If we were to change the trend, then the market could go all the way to the 1.30 level.

The only thing that I think you can count on here is going to be a lot of volatility, but that’s nothing new. With that being said, the market is likely to be one in which you need to pay close attention to short-term moves, but still favor the downside overall as the US dollar is by far the strongest currency in the world.

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The recent selling operations witnessed by the GBP/USD currency pair stopped at the support level of 1.2100, bouncing back from the resistance level of 1.2293 and settled around the level of 1.2145 in the beginning of trading today, Thursday. Ahead of the most important event for the sterling pairs, which is the monetary policy decisions of the Bank of England, followed by the next most important event, which is the US jobs numbers on Friday. This will have an impact on the market expectations of the future of raising US interest rates. Barclays forex analysts say sterling is likely to head lower after Thursday’s BoE update, but Goldman Sachs is more positive regarding the outlook for the British currency, especially against the euro.

The Bank of England’s Monetary Policy Committee is expected to announce another rate hike before releasing its latest inflation and economic growth forecasts. Prior to that, the pound strengthened against both the euro and the US dollar during the latter part of July and early August and the major test of the currency comes with the size and shape of the announced rise.

It is noted that the biggest downside risk to the pound comes in the form of disappointing the British central bank against market expectations by raising another 25 basis points. This is because the market is now almost completely “priced” up 50 basis points and based on various comments from MPC members and the June statement that it is now ready to act “aggressively” in order to control inflationary impulses. In this regard, Marek Rachko, an analyst at Barclays, agrees. “A 50 basis point delivery could lead to an unexpected rally in sterling, while a 25 basis point move should see a bigger selloff,” Rachko says.

Barclays expects the British central bank to raise 50 basis points, in line with the consensus. However, “any rally should be short-lived or reverse quickly as we expect the Bank’s updated forecasts to show stagflationary stagflation impulses.” This will be a repeat of the May policy update, in which the bank raised interest rates but released a set of forecasts showing inflation will slip below the 2.0% target over the medium term while growth will drop to negative by the end of the year.

All in all, the Sterling fell following the May update, and trended lower against most of the major currencies over the following weeks. However, the GBP/EUR exchange rate has received better support since the Bank of England’s June update as it said it was prepared to act more “aggressively” on inflation. Since then, it has risen again above 1.19 and the GBP/USD exchange rate has returned to 1.22 this week.

Barclays expects just one additional 25 basis points in September, with the bank leaving the final interest rate at 2%.

This would prove to be a major failure in capturing current market rates and pose a significant downside risk to the pound’s exchange rate levels. Currency analysts at Goldman Sachs are more positive regarding the prospects for the Pound Sterling, especially against the Euro. They expect the MPC to raise 50 basis points in a break from the “most gradual and balanced approach” taken so far this year that favored delivery in 25 basis point increases.

However, the FX team acknowledges that a 50 basis point hike would represent an important change in the bank’s approach, “and the Fed’s return toward a more balanced strategy makes the BoE somewhat less anomalous.”

GBP/USD forecast today:

I have often recommended selling the pound sterling against the dollar (GBP/USD) from every bullish level. This is especially with the recent performance, as the markets have already priced in the Bank of England’s move today to raise interest rates. In return, the US dollar is taking advanced levels in front of everyone before the announcement of US jobs numbers, along with the return of investor appetite. Technically, the pound sterling dollar breaking the support level of 1.2100 will force the bears to move further downwards, and accordingly the most prominent downward move will be the support level 1.1965.

On the upside, and according to the performance on the daily chart, the GBP/USD pair needs to test the resistance levels 1.2330 and 1.2400, respectively, to stabilize the bullish outlook.

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The pair will likely keep falling as bears target the second support at 1.1780.

Bearish View

• Sell the GBP/USD pair and set a take-profit at 1.1780.
• Add a stop-loss at 1.2050.
• Timeline: 1-2 days.

Bullish View

• Set a buy-stop at 1.2000 and a take-profit at 1.2100.
• Add a stop-loss at 1.1945.

The GBP/USD pair slumped to the lowest level since April 2020 as the political crisis in the UK escalated and the Fed sounded more hawkish. The pair dropped to a low of 1.1878, which was about 6% below the highest point in May.

UK Political Crisis

The UK economy is going through remarkable challenges with inflation soaring at the highest point in over 40 years. Retail sales have dropped and house prices remain at a record high.

At the same time, a political crisis has emerged that could derail the current administration and its policies. This week, several senior ministers like Sajid Javid and Rishi Sunak, resigned after new allegations against Boris Johnson were unveiled.

Johnson has vowed that he will remain in place as the Prime Minister. He has also replaced some of the resigning ministers. Still, it is unclear whether he will serve his full term as the country’s premier and the impact all this will have on the economy.

The GBP/USD pair has also crashed because of the strong US dollar. The dollar index has surged to the highest level in over 20 years as worries about a recession remains. It seems like many people are dumping the low-yielding currencies in favor of the stable greenback.

The Fed has committed to continuing with its hawkish policies. Minutes showed that most officials saw the need for more restrictive rates. They are now examining whether this month’s rate will be 50 or 75 basis points. Regardless of the rate, it will be the most hawkish that the bank has been in decades.

The GBP/USD price will react to the upcoming UK house price index by Halifax. The numbers are expected to show that house prices moderated slightly in June. The pair will also react to the upcoming US trade and jobs data.

GBP/USD Forecast

The four-hour chart shows that the GBP/USD pair has been in a strong bearish trend in the past few days. It managed to cross the important support at 1.1937, which was the lowest point this year. It also dropped below the important support at 1.2163.

The pair is trading at the first support of the standard pivot point. Further, it has moved below the 25-day moving average while the MACD has dropped below the neutral point. Therefore, the pair will likely keep falling as bears target the second support at 1.1780.

The pair will likely resume the bearish trend and retest this week’s low at 1.1938. 

Bearish View

• Sell the GBP/USD pair and set a take-profit at 1.1938.
• Add a stop-loss at 1.2250.
• Timeline: 1 day.

Bullish View

• Set a buy-stop at 1.2240 and a take-profit at 1.2300.
• Add a stop-loss at 1.2125

The GBP/USD pair drifted upwards after the hawkish Fed decision. Focus now shifts to today’s meeting by the Bank of England (BOE). It is trading at 1.2163, which is slightly above the lowest level this week.

BOE Decision Up Next

The Fed delivered a hawkish interest rate decision on Wednesday. After concluding the two-day meeting, the bank decided to hike rates by 0.75%, the highest increase since 1994. And in a press conference, Jerome Powell warned that the bank could hike rates by another 0.75% in its upcoming meeting.

The current pace of rate hikes provide more clarity about what Powell warned in May. In a speech, he warned that the current policy would lead to pain in the market. Since then, stocks, cryptocurrencies, and bonds have all slumped.

Still, amid the hawkish talk, there are concerns that the bank could be moving too fast. A notable fact is that Esther George, one of the most hawkish FOMC members, did not vote for a 75 basis point hike. Instead, she supported a 0.50% increase.

The next key catalyst for the GBP/USD pair will be the interest rate decision by the BOE. Analysts expect that the BOE will also hike interest rates by 0.25% for the fifth consecutive time. The bank is tightening its policy in a bid to fight the soaring inflation.

Still, the biggest concern is that data points to more weakness of the UK economy. The economy contracted for the second straight month in April. Key leading indicators like manufacturing and industrial production also declined.

Further, data published on Tuesday showed that the country’s unemployment rate rose in April. Therefore, more tightening could have an impact on the economy. Besides, the UK is expected to have the second-worst recovery in the G20 after Russia.

GBP/USD Forecast

The GBP/USD pair pulled back after the hawkish Fed decision. It rose and retested the important resistance level at 1.2163, which was the lower side of the inverted cup and handle pattern. In price action analysis, a break and retest is usually a sign of a continuation.

The pair is still below the 25-day and 50-day moving averages while the Relative Strength Index has moved slightly above the oversold level.

The pair will likely resume the bearish trend and retest this week’s low at 1.1938. A move above the 25-day MA will invalidate the bearish view.

The British pound has initially fallen during the trading session on Tuesday to break down below support but then ended up turning around to show signs of strength again as the market slammed into the 1.26 level. This shows just how volatile the markets are at the moment, and now it looks as if we are going to continue to see a lot of back-and-forth.

Keep in mind that the British pound has fared better against the greenback overall, therefore it’s likely that we will see the British pound do better than some of the other currencies such as the Euro which is struggling. All things being equal, this is a market that is still negative, but it is doing quite a bit to save itself. At this point, I think we will continue to see a lot of nasty moves, and I think it’ll be difficult to deal with the momentum that gets thrown back and forth in this market, and therefore you need to be very cautious with your position size.

We are still very much in a downtrend, and I certainly think that the momentum that has been thrown into this market will be difficult to maintain after the return, but if we were to break above the 1.2650 level, and then the 50 Day EMA, we could see the British pound takeoff against the US dollar and make a move to the 1.30 handle. That’s an area where I would expect to see a lot of selling pressure as well, as it had previously been so much support. The market shows it as an important level multiple times in the past, and I do not expect that to be any different if we were to approach it again. At that point, if we can break above there then I would believe that the downtrend is over.

If we break down below the bottom of the candlestick for the trading session on Tuesday, then it opens up the possibility of a move down to the 1.24 level, followed by the 1.22 level, where we had bounced from, to begin with. I don’t know that we break through there, but if we do it opens up the possibility of a move down to the 1.20 level. Regardless, I am still fading short-term rallies as things stand at the moment.

It seems like the bearish trend will continue as bears target the key support level at 1.2418, which was the 23.6% Fibonacci retracement level.

Bearish View

• Sell the GBP/USD and set a take-profit at 1.2418.
• Add a stop-loss at 1.2550.
• Timeline: 1 day.

Bullish View

• Set a buy-stop at 1.2540 and a take-profit at 1.2600.
• Add a stop-loss at 22450.

The GBP/USD pair is hovering near its lowest level since May 20th after the positive data from the UK. The pair is trading at 1.2488, which is about 2% below the highest level on May 27th ahead of the important US inflation data.

US Dollar Stages Comeback

The GBP/USD pair has retreated in the past few days as investors focus on the relatively strong US dollar. The closely-watched dollar index has risen in the past two straight days as investors continue pricing more risks in the market.

Last week, the market received key warning signs from corporate America. Jamie Dimon, the CEO of the biggest bank in the United States, warned that the situation was worsening. Tesla’s Elon Musk also issued a similar warning.

A few weeks before, important companies like Walmart and Target which employ a vast number of Americans warned that inflation was a major challenge. Therefore, investors are now anticipating a potential recession, which explains why stocks have retreated.

The GBP/USD retreated after the better-than-expected jobs numbers from the US made the case that the Federal Reserve will continue tightening in the coming months. The bank has already committed to delivering at least three more 0.50% hikes in the coming meetings.

Looking ahead, the pair will react to the upcoming US consumer inflation data that will come out on Friday. Analysts expect these numbers to show that the headline CPI declined from 8.3% in April to 8.1% in May. Excluding the volatile food and energy prices, analysts expect that inflation fell from 6.2% to 5.9%. This will be a sign that inflation is now stabilizing.

The GBP/USD pair will also react to the reopening of the UK after the country’s long public holiday in honor of Queen Elizabeth.

GBP/USD Forecast

The GBP/USD pair formed a rising wedge pattern that is shown in black. In price action analysis, this pattern is usually a bearish sign. This breakout happened last week when it move below the 25-day and 50-day moving averages. Now, the pair is approaching the important support at 1.2465, which was the lowest level on June 1.

Therefore, it seems like the bearish trend will continue as bears target the key support level at 1.2418, which was the 23.6% Fibonacci retracement level.

The pound against the dollar rebounded from its earlier losses late last week but faltered again in weak holiday trading on Friday after the US non-farm payrolls and services PMI reports for May provided stimulus to the Federal Reserve. This seemed to have become more hardline in recent days. The gains of the GBP/USD pair did not exceed the resistance level of 1.2589 and returned to stability downwardly around the 1.2500 level at the time of writing the analysis, which confirms the continuation of pressure factors on the pound.

The GBP/USD pair returned to negative influence after the US data seemed to call on the Federal Reserve to consider a faster pace of US interest rate hikes in the coming months. The next FOMC meetings will need to see employment gains run well below the current pace to prevent further tightening in labor markets that the Fed wants to avoid.

Official measures of wage growth in the United States eased slightly in May with the pace of job growth, although it may not have been enough to change much for the Fed, while the S&P Global Services PMI survey indicated the possibility of higher employment rates, future wage growth and inflation. In general, inflationary pressures remained historically high in May. The rate of increase in cost burdens accelerated again, hitting a new high streak. Speakers stated that higher input prices were caused by increases in fuel, energy, and supplier costs, along with increased wage bills,” S&P reported.

The S&P Global Purchasing Managers’ Index changed little in May, although contradicting some of the details with the equivalent Institute for Supply Management survey that emerged shortly thereafter, which fell 1.2 points to 55.9. The slowdown in the sector is due to declining business activity and slowing supplier deliveries. The employment index (50.2 percent) returned to growth territory, and the backlog of orders index grew, albeit at a slower rate. COVID-19 continues to disrupt the service sector, as does the war in Ukraine. The Industry Authority said employment is still a big problem and prices continue to rise.

More importantly, both surveys suggested that the demand for workers continues to rise along with their demands for wages and some other prices, things that could increase inflation and encourage the Fed to continue raising US interest rates in significant increases throughout the rest of the year.

According to the technical analysis of the pair: The clear discrepancy between the Federal Reserve and the Bank of England in the course of raising interest rates will remain an important factor in threatening any gains for the GBP/USD pair in the coming days. Sterling dollar gains will remain subject to selling especially as the Bank of England remains pessimistic on the reaction from continuing to raise rates. So far, the currency pair has been unable to gain momentum to continue in the bullish channel that was formed recently, amid halting the dollar’s gains against everyone temporarily.

The bulls will need to move towards the resistance levels 1.2680, 1.2860 and 1.3000 to confirm that the general trend will turn to the upside. In the same time period on the daily frame, stability below the 1.2465 support will be a threat to the bullish expectations.

I suspect that on the first signs of exhaustion, sellers will probably come in. As far as the Friday session is concerned, I would not get involved.

The British pound has rallied right back into a major resistance area against the US dollar during trading on Thursday as we seemingly have no idea where we want to be. Exacerbating this is the jobs number coming out during the day on Friday, so I would expect more chop and meaningless momentum.

When you look at the longer-term trend, it is to the downside. However, people are starting to suggest that the Federal Reserve will not be able to tighten as much as they had suggested previously, so people are betting against the greenback again. That being said, it is probably only a matter of time before people freak out again and run back to the US dollar, but in the meantime, we are left dealing with this kind of noise. Unfortunately, this is a very difficult environment to trade because we have these vicious countertrend rally days like we had multiple times on the way up here. You will notice that most of the candlesticks are rather large, and have conflicting colors. In other words, nobody really knows what they’re going to do.

You would have to assume that over the longer term the trend holds, but you can’t necessarily bet on it. After all, markets will do whatever it is they’re going to do but it certainly looks as if they want to press the issue in the meantime. I would anticipate a lot of sloppy and difficult trading, and Friday is probably going to be a great day to lose money. With this, I would wait to see how the market plays out on Friday before I would put any money to work because where people will hold money over the weekend says a lot about how they feel about the market. Right now, it’s all confusion.

If we were to break above the 1.27 level, it would be a bullish turn of events and could have this market looking for much higher levels. At that point, I would anticipate that we could get a move to the 1.30 level over the longer term. That being said, it’s not until we break above there that I would consider the trend wiped out and to be one that is positive. I suspect that on the first signs of exhaustion, sellers will probably come in. As far as the Friday session is concerned, I would not get involved.