The GBP/USD pair will likely continue falling as sellers target the next key support at 1.1900

Bearish view

• Set a sell-stop at 1.1900 and a take-profit at 1.1900.
• Set a stop-loss at 1.2100.
• Timeline: 1-2 days.

Bullish view

• Set a buy-stop at 1.2090 and a take-profit at 1.2200.
• Add a stop-loss at 1.2000.

The GBP/USD price wavered in the American and Asian sessions as investors reacted to the latest economic data from the UK and the FOMC minutes. It was trading at 1.2080 on Thursday morning, which was lower than this month’s high of 1.2287.

UK Inflation and FOMC Minutes

The GBP/USD price has been in the spotlight this week as the Office of National Statistics (ONS) publishes important economic data. On Tuesday, numbers revealed that the labor market was cooling as the jobless rate increased slightly in June. Additional data published on Wednesday revealed that UK’s inflation continued surging in July as the cost of energy rose. The headline consumer inflation rose by 0.6% on a month-on-month basis in July.

This increase as bigger than the expected 0.4%. It led to a year-on-year increase of 10.1%, which was also higher than the expected 9.8%.

Excluding the volatile food and energy prices, UK’s inflation rose from 5.8% in June to 6.2% in July. Again, this increase was higher than the expected 5.9%.

Companies also experienced higher prices. The producer price index input and output rose by 22.6% and 17.1%, respectively. Therefore, analysts believe that the Bank of England (BoE) will be under pressure to hike more without pushing the economy to a recession. The ONS will publish the latest UK retail sales on Friday.

The GBP/USD price also wavered after the Federal Reserve published the latest minutes. The minutes showed that officials were still concerned about the rising inflation. But most of them were concerned about the pace of hikes.

As a result, the bank hinted that it would start hiking rates at a slower pace. Analysts are now pricing in a 0.50% hike in September followed by 0.25% in the final two meetings of the year.

GBP/USD Forecast

The four-hour chart shows that the GBP/USD price has been in a downward trend in the past few days. This decline happened after the pair formed a double-top pattern at 1.2288. In price action analysis, this pattern is usually a bearish sign.

The pair has moved below the 25-day and 50-day moving averages and the 38.2% Fibonacci Retracement level. Therefore, the pair will likely continue falling as sellers target the next key support at 1.1900. This view will be confirmed it manages to move below 1.200.

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The pair will likely keep rising as buyers target the key resistance at 1.2300.

Bullish View

• Buy the GBP/USD pair and set a take-profit at 1.2300.
• Add a stop-loss at 1.2050.
• Timeline: 1-2 days.

Bearish View

• Set a sell-stop at 1.2130 and a take-profit at 1.2050.
• Add a stop-loss at 1.2250.

The GBP/USD price made a bullish breakout as investors reflected on last week’s Federal Reserve decision and the upcoming Bank of England (BoE) meeting. The pair rose to a high of 1.2230, which was the highest point since June 28th of this year. It has risen by about 3.60% from the lowest level this year.

Fed and BoE Decisions

The GBP/USD pair moved sideways last week as investors reflected on the latest decision by the Federal Reserve. The bank decided to hike interest rates by 0.75% for the second consecutive meeting. This increase was smaller than the 1% that most analysts were expecting.

Focus now shifts to the Bank of England (BOE), which will start and complete its monetary policy meeting this week. Analysts expect that the bank will hike rates for the sixth consecutive time in a bid to fight inflation. Based on recent comments by Andrew Bailey, analysts expect that the BoE will hike rates by 0.50%.

Data published by the Office of National Statistics (ONS) revealed that the country’s consumer price index (CPI) rose to a multi-decade high of 9.4%. This makes it the biggest inflation in the G7 followed by the United States whose CPI rose by 9.1% in June.

Meanwhile, the UK labor market is still strong. The unemployment rate remained unchanged at 3.8%, which means that the labor market is still tightening. However, data revealed that the country’s retail sales recoiled in June as inflation jumped.

The GBP/USD pair will next react to the latest UK and US PMI numbers. In the UK, analysts expects that the country’s inflation dropped to 52.2 in July. In the US, economists expect that the data by the Institute of Supply Management (ISM) will show that the manufacturing PMI dropped from 53.3 to 52.2.

GBP/USD Forecast

The four-hour chart shows that the GBP/USD pair has been in a strong bullish trend in the past few weeks. It has risen by more than 3.50% from its lowest level in July. Along the way, the pair has moved above the 25-day and 50-day moving averages. It is also supported by the ascending blue trendline.

Most importantly, the pair rose above the important resistance at 1.2085, which was the neckline of the inverted head and shoulders pattern. Therefore, the pair will likely keep rising as buyers target the key resistance at 1.2300.

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The political division in Britain increased, and the Brexit parties’ skirmishes appeared, along with the economic suffering from the consequences of the Russian-Ukrainian war. There is also a continuing pessimistic view of the Bank of England and expectations of recession, in addition to the continuation of the US Federal Reserve’s direction for more interest rate hikes. All combined factors contributed to the continuation of the sharp downward trend for the pound gainst the dollar, GBP/USD, with recent losses pushed it towards the 1.1875 support level, the lowest for the currency pair since March 2020. 

The pound continued to collapse, as speculation spread about the future of British Prime Minister Boris Johnson amid a wave of moving away from top positions in the government and the party’s confidence in his leadership waning. Sterling began to tumble in the wake of news of the dismissal of Prime Minister Michael Gove. However, it is still above the day’s lows, after earlier in the session dropping to as low as $1.1876, a level last seen amid the pandemic turmoil in early 2020.

Gove, a senior member of the party who has been in charge of the housing portfolio, had earlier called on Johnson to resign and would be the latest high-profile figure to leave the government. The move follows the departure of Chief Financial Officer Rishi Sunak, Health Minister Sajid Javid and a host of other cabinet members. The recent political turmoil is putting pressure on the pound, which has been hurt by fears that higher interest rates in the UK will continue to delay monetary tightening in the US and other countries, as Britain faces greater economic risks in the coming months.

Overall, the British pound has fallen 12% against the US dollar so far this year 2022 due to this mix of local and global issues, and an increasing number of market participants see the potential for the British currency to fall towards the $1.10 level, a level last seen in 1985. Sterling was not much pleased with the rebound gains as gas prices in the UK and Europe rebounded somewhat on news of a major strike in Norwegian gas fields that will now be averted, although supplies from Russia remain restricted. The strikes, which threatened to cut off most gas imports from the UK and Europe from Norway, were called off with the Norwegian Ministry of Labor confirming that it had intervened to end the industrial strike scheduled for later this week.

This is an important development for the pound and the euro, which have fallen sharply against the dollar over the past two days amid rising European gas prices, which threatened rising inflation and slowing economic activity. These price increases have been linked to news of Norwegian strikes that could have threatened up to 60% of the country’s imports as Russia continues to squeeze supplies.

In general, the Sterling Pound, Euro and other European currencies came under massive selling pressure during the first part of this week’s trading and it seems that it will remain subject to further losses against the Dollar as the energy crisis in Europe worsens. “Fears of a gas crisis cast a shadow over everything,” says Ulrich Leuchtmann, head of FX and commodities research at Commerzbank. The gas supply crisis will be a Europe-specific problem.

And in the context of a “European problem”, the UK was included in light of the interdependence between the gas market and Europe. This, in turn, is reflected in the drop in the Pound Sterling along with the Euro against the Dollar as concerns about European energy security escalated into a series of headlines that included pressure on Russian gas supplies.

GBP/USD Forecast

In the above list, the factors of continued weakness of the GBP/USD currency pair become clear, which means that the general trend is still bearish and that the currency pair is subject to testing new record support levels, and investors will not care about the arrival of technical indicators towards oversold levels as much as following the factors of sterling weakness. Accordingly, the support levels 1.1865, 1.1770 and 1.1690 may be legitimate targets for the current bears’ control.

On the other hand, the first break of the trend still needs to move towards the resistance level 1.2445 as a first stage on the daily chart. The sterling dollar pair will be affected today by:

• Developments in Britain
• The reaction to the announcement of the number of US jobless claims
• Statements of a number of US monetary policy officials.

The pair will likely keep falling as bears target the key resistance at 1.2000.

Bearish View

• Sell the GBP/USD pair and set a take-profit at 1.200.
• Add a stop-loss at 1.2200.
• Timeline: 1-2 days.

Bullish View

• Set a buy-stop at 1.2166 and a take-profit at 1.2250.
• Add a stop-loss at 1.2100.

The GBP/USD price continued in a consolidation phase as investors waited for a statement by Bank of England’s Andrew Bailey and the release of the country’s financial stability report. The pair is trading at 1.2100, which is slightly below Monday’s high of 1.2166.

Andrew Bailey Statement

The GBP/USD will be in the spotlight as Bank of England’s Andrew Bailey, the head of the BOE. He will speak as the bank launches the financial stability report that will provide more information about the economy and the banking sector.

Bailey will likely not make any new news in his speech. In an ECB event last week, he lamented that the UK economy was weakening at a rapid rate than anticipated. Indeed, the economy contracted in April and May and analysts expect that it declined in Q2.

Other leading economic data have sent warnings about the economy. For example, numbers by the Nationwide Society revealed that the house price index declined in June as mortgage rates jumped. Further data by Gfk showed that the country’s consumer confidence declined sharply as consumer inflation surged.

The GBP/USD pair will also react to the upcoming UK services and composure PMI numbers. These are important leading indicators that provide a gauge about the country’s economy. Based on the flash estimates published recently, analysts expect the data to show that the services PMI dropped to 53.4 while the composite on fell to 53.1. Still, since the PMI is above 50, it is a sign that output in the country is still strong.

The pair will also react to the reopening of Wall Street since American markets were closed on Monday for Independence Day celebrations. The next important catalyst for the GBP/USD price will be the upcoming American jobs data.

GBP/USD Forecast

The 4H chart reveals that the GBP/USD pair formed a break and retest pattern. It retested the important resistance level of 1.2166, which was the lowest point on June 23rd. The pair remained below the 25-day and 50-day moving averages while the Relative Strength Index (RSI) remains slightly below the neutral point at 50.

Therefore, the pair will likely keep falling as bears target the key resistance at 1.2000. A move above the resistance at 1.2166 will invalidate the bearish view.

During the last week’s trading, the most prominent decline in the Forex market was the collapse of the GBP/USD pair towards the 1.1975 support level, penetrating the 1.2000 psychological support. This indicated the possibility of moving towards it a lot, especially when the GBP/USD approached the 1.2175 support. With the beginning of this week’s trading, the GBP/USD pair tried to maintain its gains around 1.2165, but the pressures on the sterling pound are still strong and continuous, and the currency pair settled around the 1.2100 support level, waiting for any new developments.

The British Pound overcame a reversal of a bullish dollar since the beginning last week and had slipped below the 1.20 level on Friday before the greenback suffered a setback from the June ISM manufacturing PMI reading. Commenting on this, Chris Weston, chief market analyst at Pepperstone.” Friday’s US ISM manufacturing report showed a significant deterioration in new orders and sub-components of employment (both moved into contraction) and while inventories rose to 56.0, the sentiment is not a sign of easing supply chains (Positive in stocks), but a sign that demand is declining.”

“The potential for a technical recession is now very high, and although the labor market is in poor health, not many will feel long-term economic pain,” he added. That may, unfortunately, come too far during the year and the fact that we have cuts of 77 basis points in US rates for 2023 indicates that the market sees this as an increasing possibility.

The US dollar did not benefit from Friday’s downside surprise in the ISM manufacturing survey or the core PCE price index, the Fed’s preferred inflation measure, which paused for June on Thursday and dragged the annual rate down from 4.9% to 4.7% on the way.

Also, the British Pound extended its losses and only accumulated gains on the Dollar among the major data releases, while many analysts attributed this to growing market concerns about the outlook for US and global economic growth. So says Paul Robson, currency analyst at Natwest Markets, “The only economy where growth forecasts have actually been revised down significantly is the UK. Bank of England Governor Bailey sounded very cautious about the economy in Sintra, noting that the UK was at a tipping point and may be weakening faster than other countries.

“It appears to be a widely held view in the market already, so there is less room for such comments to alter sentiment toward the currency,” the analyst added. The GBP/USD continues to trade weakly, against our expectations, although this week the story has been more stronger than the US Dollar It’s more of an independent weakness story. With the USD outlook more balanced, we hold the view that GBP/USD forms a base around 1.20.”

It may also be relevant this week, however, as Friday’s rally was accompanied by continuous joint movements between GBP/USD and GBP/CAD during the hours before and after the London close, indicating the emergence of a bid Great sterling in Asia. Where this persists for more than a moment in GBP/CNH, it likely reflects oversight of the floating renminbi-sterling exchange rate by the People’s Bank of China (PBoC); Something that the sterling bears might overlook at their own risk. But it is also likely that much will now depend on whether the dollar continues its decline on Friday from long-term highs against many currencies, which in turn will likely depend on the market’s response to a host of events in the US calendar for the coming days.

GBP/USD analysis

Bearish penetration of the price of the GBP/USD currency pair to the support level 1.2175 still supports the move towards psychological support 1.2000 and much less than that. The US dollar is still stronger with expectations of raising US interest rates throughout 2022 and the pound, despite the expectations of raising interest rates from the Bank of England, but it faces pressure factors from British political anxiety and fears of a grinding economic recession. On the other hand, to cause a breach of the current trend, the bulls will have to rush towards the resistance level 1.2465, according to the performance on the daily chart below. The British pound will interact today with the announcement of the British Services PMI reading and the statements of the Governor of the Bank of England.

For six trading sessions in a row the GBP/USD price moves in tight ranges and during it every time it tries to bounce up, it quickly falls back down again. As the pressure factors on the sterling pound are still strong, it is represented in the continuation of political anxiety in Britain. By comparing the Bank of England and the US Federal Reserve in the future of raising interest rates, the dollar will be the strongest. The GBP/USD pair is stable around the 1.2285 level at the time of writing the analysis.

The Bank of England’s base rate should be set at 10% given the scale of UK inflation, according to one of the major international finance houses. Research by Swiss Re, a wholesale provider of reinsurance and other insurance-based risk transfers, has found that the Bank of England is farther off the “curve” than any other global central bank.

The results come on the heels of the Bank of England’s decision to raise interest rates by another 25 basis points in June, raising the benchmark rate to 1.25%. The bank could move very slowly if it is to achieve its target of stabilizing UK inflation back to 2.0% according to Swiss Re. As such, Swiss Re sees more rallies coming from all major central banks, including the Bank of England which cannot be left behind by the likes of the US Federal Reserve.

“The most important central bank tightening cycle in decades has begun, and we expect more policy tightening this year and next,” says Jerome Hegele, chief economist at Swiss Re Group. “We believe that central banks will proceed with tightening policy even as growth slows, until there is a significant reduction in inflation momentum,” he adds. Overall, some economists have accused the BoE of being more focused on maintaining UK economic growth than containing inflation, meaning that it has not made rate hikes in increases of more than 25 basis points. The policy decision in May was notable as the bank indicated it was a reluctant parker, fearing that the economy was on the verge of faltering.

The bank seems to have realized that its primary objective is to fight inflation, even if it means the economy has stalled. Accordingly, Hegele says: “A strong new cycle of central bank tightening is needed.” “Adequate interest rate policy estimates, which quote our estimates of the Taylor rule, suggest that virtually all central banks with major advanced economies are at least 2 points below the levels of interest rates that can be guaranteed given the current economic environment,” he added.

The Taylor rule is an equation that states the central bank’s policy rate as a function of inflation and economic stagnation as the output gap or unemployment gap. In the case of the US Federal Reserve, the current environment would mean policy rates of around 7%, compared to 1.75% at present. For the Bank of England, a bank interest rate closer to 10% seems more appropriate.

The BoE will have little choice but to keep raising rates as long as the Fed continues at its current pace, which means a 50bp hike in the August policy decision is highly likely. Swiss Re explains that those central banks that are left behind risk seeing their currencies weaken, which only adds to inflationary pressures.

This is certainly the view of BoE MPC Catherine Mann who said in a recent speech that the Bank should be more active in following the Fed to defend the value of the GBP and reduce imported inflationary pressures. However, the BoE is full of policymakers who remain concerned about economic growth, and the odds of a rise of another 25 basis points in August remain high as a result. This will be a negative development for the GBP as the market is now fully priced at a 50bp move.

GBP/USD forecast:

On the daily chart below, the price of the GBP/USD currency pair is moving in a neutral position, but the stronger tendency is still to the downside. The bears’ return towards the support level 1.2175 will restore the strength of the stronger bearish expectations towards the psychological support level 1.2000, respectively. The technical indicators will move towards strong oversold levels. In return for a breach of the current trend, the currency pair must move towards the resistance levels 1.2525 and 1.2700 as a first stage. I still prefer to sell the currency pair from every bullish level.

The outlook for the pair is bearish ahead of the upcoming UK inflation data and Fed chair testimony. 

Bearish View

• Sell the GBP/USD pair and set a take-profit at 1.2150.
• Add a stop-loss at 1.2350.
• Timeline: 1-2 days.

Bullish View

• Set a buy-stop at 1.2295 and a take-profit at 1.2350.
• Add a stop-loss at 1.2200.

The GBP/USD price continued to consolidate as investors waited for the upcoming UK consumer and producer inflation data. The pair also reacted mildly to the ongoing strike by rail workers. It was trading at 1.2271 on Wednesday morning.

UK Inflation Data Ahead

The UK economy is going through numerous challenges. The most important one is that the country’s consumer and producer inflation is soaring as the crisis in Ukraine continues. It is estimated that this inflation will push the average food bill by £380 this year.

The Office of National Statistics (ONS) will publish the latest UK CPI and PPI data on Wednesday morning.

Economists polled by Reuters expect the data will show that inflation is still surging. The median estimate is that inflation rose from 9.0% in April to 9.1% in May. If analysts are accurate, it will be the highest increase in decades.

On the positive side, analysts expect that the headline and core inflation eased slightly on a month-on-month basis. In its meeting last week, the Bank of England warned that inflation will rise to over 10% in the coming months.

Meanwhile, UK producers are expected to see elevated costs. The PPI input and output are expected to have risen by 19.4% and 14.7%, respectively.

These numbers will come at a time when the transport sector in the UK is going through turmoil. Over 40,000 rail workers went in the biggest strike in over 30 years. The three-day strike is expected to have some impact on the country’s inflation.

The GBP/USD pair will react to the upcoming testimony by Jerome Powell. The Fed Chair will be quizzed by Senators on the state of the economy and actions that the bank is doing. It will be his first grilling since the Fed decided to hike rates by 0.75%.

GBP/USD Forecast

The GBP/USD pair continued to consolidate ahead of the upcoming UK consumer inflation data. It is trading at 1.2270, where it has been in the past two straight days. The pair remains slightly above the standard pivot point and is also consolidating along the 25-day and 50-day moving averages.

It has also formed a small rising wedge pattern. Therefore, the outlook for the pair is bearish ahead of the upcoming UK inflation data and Fed chair testimony. The key support to watch will be at 1.2150.

This is a market that has been one way for a while, and there is not much in the way of fundamentals that should change it.

The British pound fell heading into the weekend, testing the 1.22 level rather quickly. At this point, the market looks as if it is getting a bit tired already, and it looks like the downward momentum will continue. Ultimately, the British pound has had a volatile couple of days, but at the end of the Friday session, it looked as if the longer-term trend remains intact.

Breaking down below the 1.22 level opens up the possibility of retesting the 1.20 level, an area that we had bounced from quite significantly the last time we visited it. Because of this, I think we more likely than not have a lot of noisy behavior coming down the road. With that in mind, I like the idea of selling short-term rallies and focusing on the 1.20 handle. If we break down below there, then it opens up a whole new rush of selling pressure, perhaps sending this market down to the 1.18 level.

At this point, the market will also have to pay close attention to the 50-day EMA, which is at the 1.26 level and drifting lower. Ultimately, this suggests to me that the market is likely to see a lot of noisy behavior in that area because the 50-day EMA has been so reliable. If we were to break above the 1.26 area, then we could see buyers come into this market and push it toward the 1.30 level. However, we remain in a downtrend and probably will for the remainder of the foreseeable future. If we break down below that 1.20 level, it would probably accompany massive US dollar strength in general, so I do think that it is worth paying close attention to.

If we do break above the 1.30 level, at that point I would anticipate that the trend had changed, and we would be looking at a British pound that is suddenly bullish. With the Federal Reserve being as tight as it is right now, I just don’t see that happening, but I suppose anything is possible. The most recent low was lower than the one before it, and it now looks as if we are going to break down below that low as well. This is a market that has been one way for a while, and there is not much in the way of fundamentals that should change it.

The pair will likely continue falling as bears target the key support at 1.2200. 

Bearish View

• Sell the GBP/USD pair and set a take-profit at 1.2200.
• Add a stop-loss at 1.2400.
• Timeline: 1-2 days.

Bullish View

• Set a buy-stop at 1.2325 and a take-profit at 1.2450.
• Add a stop-loss at 1.2300.

The GBP/USD pair declined sharply as odds of a more aggressive Federal Reserve continued. The pair crashed to a low of 1.2263, which was the lowest point since May 16th. It has fallen by over 2.8% below its highest point last week.

Fed and BOE Decisions Ahead

The GBP/USD pair declined after the strong US inflation numbers pushed investors to price in a more hawkish Federal Reserve.

According to the Bureau of Labor Statistics (BLS), the country’s inflation surged to 8.6% in May, the highest level since December 1981. The figure was better than the median estimate of 8.1%. At the same time, core inflation rose on a year-on-year basis but dropped for the fourth straight month on a MoM basis.

This will be a big week for the GBP/USD pair as focus shifts to important economic data from the US and the UK and the FOMC and BOE decisions.

On Monday morning, the Office of National Statistics (ONS) will publish the latest GDP numbers. Analysts believe that the country’s economy remained under pressure in April as consumer inflation continued surging.

The ONS will also publish the latest manufacturing, industrial, and construction output numbers. On Tuesday, the agency will release the latest UK jobs numbers. Analysts believe that the country’s unemployment rate declined to 3.7% to 3.6% in April.

The most important events will be the latest Fed and BOE decisions that are scheduled for Wednesday and Thursday, respectively. Analysts believe that the Fed will hike interest rates by 0.50% in its bid to fight inflation. It will also continue with its quantitative tightening (QT) policy.

The BOE is also expected to hike interest rates for the fifth consecutive meeting. The 0.25% hike will push the baseline interest rate to 1.25%.

GBP/USD Forecast

The four-hour chart shows that the GBP/USD pair continued its bearish trend after the strong US inflation data. It fell to a low of 1.2263, which was the lowest point since May 16th. As it dropped, it moved below the lower side of the descending channel shown in black. The pair also retreated below the 23.6% Fibonacci retracement level.

Therefore, the pair will likely continue falling as bears target the key support at 1.2200. This price is about 1.02% below the current level.

I’m looking for short-term rallies that I can take advantage of, to pick up value in the US dollar when we get an opportunity.

The GBP/USD pair initially tried to rally during the training session on Thursday but get back gain as we continue to see a lot of negativity. Furthermore, the CPI numbers coming out of the United States on Friday will certainly have a major influence on what happens with the greenback, and it looks is that the bond markets are trying to price the idea of a hotter than expected inflationary number. If that’s going to be the case, then it makes quite a bit of sense that the US dollar will continue to strengthen.

While we have not broken it down completely, it is worth noting that rallies continue to get sold into. If we break down below the lows of the Tuesday session, it almost certainly will send this market down to the 1.24 level, possibly even down to the 1.22 level. I do think that it is probably a scenario where we have more of a “sell the rallies” type of situation unless, of course, something changes completely.

If the CPI numbers come out lower than anticipated, that could cause a bit of a turnaround, but we also have a lot of resistance near the 1.26 level that extends to the 1.2650 level, where the 50 Day EMA sits and is going lower.

I believe at this point we have a situation where the British pound will have to prove itself, so unless it’s an absolutely astonishing number during the day on Friday, I just don’t see how this market changes the trend. Even if we were to break above the 50 Day EMA, the ceiling in the market is probably at the 1.30 level as there is such an obvious selloff at that point and by extension, quite a bit of supply. Breaking above that would be what it would take to change the overall trend of this market, something that I’m not anticipating seeing anytime soon. Because of this, I’m looking for short-term rallies that I can take advantage of, to pick up value in the US dollar when we get an opportunity. However, if we get a massive rally on Friday, then we need to look for signs of exhaustion unless of course we get that break out in daily close above the 50 Day EMA. Ultimately, this is a market that had shown quite a bit of exhaustion.