The pair will likely continue falling as sellers target the second support at 1.1770.

Bearish View

• Sell the GBP/USD pair and set a take-profit at 1.1770.
• Add a stop-loss at 1.2020.
• Timeline: 1 day.

Bullish View

• Set a buy-stop at 1.2010 and a take-profit at 1.2110.
• Add a stop-loss at 1.1830.

The GBP/USD pair declined sharply in the overnight session as investors rushed to the safety of the US dollar. The price declined to a multi-month low of 1.1892, which was substantially lower than last week’s high of 1.2331.

USD as Safe Haven

The GBP/USD pair declined sharply as the US dollar strength continued. The US dollar index rose to a multi-decade high of $106.40 as demand for the greenback continued. This rally happened as concerns about the health of the global economy continued.

For example, on Tuesday, Andrew Bailey, the head of the Bank of England (BOE) warned that the country’s economy was deteriorating at a faster pace than expected. He noted that the wage growth was still slow even as inflation jumped to the highest level in four decades. This explains why consumer confidence has tumbled in the past few months.

Therefore, the BOE is under intense pressure as the country goes through its first stagflation in decades. The bank has opted to continue with the aggressive rate hike policy while risking a recession.

Indeed, data published on Tuesday showed that the country’s business output declined in June. Services PMI dropped to 54.3 while the composite PMI fell to 53.7. While these numbers are above 50, they signal that activity is slowing. Other recent data from the UK like retail sales and house prices ave been disappointing.

The next key catalyst for the GBP/USD pair will be the upcoming minutes by the FOMC. During that meeting, the members voted to hike interest rates by 0.75% in a bid to fight inflation. Therefore, these minutes will provide more color about the deliberations during the committee.

The Bureau of Labor Statistics will publish the latest job openings data. Analysts expect the numbers to reveal that the country’s openings rose fell to 11 million.

GBP/USD Forecast

The four-hour chart shows that the GBP/USD pair made a strong bearish breakout in the overnight session. It dropped and tested the first support of Woodies pivot point. The pair then moved below the 25-day moving average while the Relative Strength Index has pointed downwards. It also declined below the important support level at 1.1943, which was the lowest point on June 14th.

Therefore, the pair will likely continue falling as sellers target the second support at 1.1770. A move above the resistance at 1.200 will invalidate the bearish view.

The outlook for the pair is bearish, with the next key support being at 1.2350.

Bearish View

• Sell the GBP/USD and set a take-profit at 1.3550.
• Add a stop-loss at 1.2600.
• Timeline: 1-2 days.

Bullish View

• Set a buy-stop at 1.2525 and a take-profit at 1.2625.
• Add a stop-loss at 1.2450.

The GBP/USD pair pulled back signaling that the recent recovery trade has ended. The pair declined to a low of 1.2454 as the Fed started implementing its quantitative tightening program and as investors positioned themselves for the upcoming jobs data.

US Dollar Strength

The GBP/USD pair declined as the US dollar index continued making a comeback. The closely-watched dollar index rose by more than 0.80% while the CBOE volatility index rose by 5%.

At the same time, American equities turned lower, with the Dow Jones and Nasdaq 100 shedding more than 1%. This was a sharp reversal since they were all in the green when the market opened.

The main catalyst for the performance was that the Fed has started reducing its balance sheet gradually. It will scale down its assets by about $47.5 billion per month and then double the amount later this year.

Investors are looking ahead to the upcoming US jobs numbers that are scheduled for the coming two days. On Thursday, ADP will release its estimate of the jobs created by the private sector. Analysts expect these numbers to show that the economy added over 300k jobs in May.

As you recall, some of the biggest employers like Walmart and Target warned that they would start scaling back their employees. They noted that they had overhired during the pandemic boom.

The official jobs numbers will come out on Friday. Analysts expect these numbers to show that the economy added over 320k jobs in May while the unemployment rate declined to 3.5%. With inflation surging, the most important data to watch will be on wages, which are expected to have grown by 5.2%.

The GBP/USD pair also declined after signs emerged that the UK housing market was slowing down as the cost of borrowing rose.

GBP/USD Forecast

The four-hour chart shows that the GBP/USD pair formed a rising wedge pattern recently. Historically, this pattern is usually a bearish sign. The pair managed to move below the lower side of the wedge pattern this week.

Also, it fell below the 25-day and 50-day moving averages and is now approaching the 23.6% Fibonacci retracement level. The MACD has moved below the neutral point. Therefore, the outlook for the pair is bearish, with the next key support being at 1.2350.

The pair will likely keep rising as investors target the 50% retracement level at 1.0765.

Bullish View

• Buy the EUR/USD pair and set a take-profit at 1.0800.
• Add a stop-loss at 1.0600.
• Timeline: 1-2 days.

Bearish View

• Set a sell-stop at 1.0600 and a take-profit at 1.0500.
• Add a stop-loss at 1.0700.

The EUR/USD price continued its bullish momentum after the hawkish note by Christine Lagarde. It also rose as volatility in the market declined, dragging the US dollar. It is trading at 1.0680, which is the highest it has been since April 26th.

ECB Tightening

The ECB has been embraced a more cautious tone than other major central banks. While the Fed, RBA, and BOE have all hiked interest rates, the ECB has failed to do so. Instead, the officials have focused on lowering the pace of easing in the past few meetings. As a result, this posture has dragged the EUR/USD close to its parity level against the US dollar.

The situation is now changing, if recent statements by ECB’s officials are to go by. Last week, the head of the German central bank recommended that the bank should start moving in its July meeting. In a separate statement, the head of the Dutch central bank said that the bank should deliver a giant 0.50% hike in a bid to fight inflation.

On Monday, Christine Lagarde penned a lengthy statement explaining her thoughts on tightening. She noted that the bank would start hiking interest rates in July and exit negative rates territory in September. This explains why the EUR/USD pair has risen sharply in the past few days.

The pair will therefore react to a statement by Lagarde that will happen during the American session. In it, she will likely talk more about her thoughts on how rapidly the bank will move from the era of easy money.

Meanwhile, the EUR/USD pair will react to a statement by Jerome Powell. Like last week, the Fed chair will likely reiterate on the bank’s policies. The top economic data to watch will be new home sales and EU and US flash PMIs.

EUR/USD Forecast

The EUR/USD has staged a strong comeback in the past few days. During this time, the pair has managed to move above the important 38.2% Fibonacci retracement level. It has also jumped above the important resistance level at 1.0640, which was the highest level on May 5th. The pair has moved above the 25-day moving average while the Stochastic Oscillator has moved above the overbought level.

Therefore, the pair will likely keep rising as investors target the 50% retracement level at 1.0765. A drop below the support at 1.0600 will invalidate the bullish view.