Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.3000.
- 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 1.3000.
The GBP/USD exchange rate continued its strong downtrend, forming a head-and-shoulders pattern that points to further downside this year. It plunged to a low of 1.3245, its lowest point since May 13, and has dropped by over 3% from the year-to-date high.
Federal Reserve Interest Rate Decision
The GBP/USD pair plummeted after a series of strong economic data from the United States. A report by The Conference Board showed that consumer confidence increased in July, serving as a positive catalyst for the economy.
Another report by ADP showed that the private sector created over 104,000 jobs in July. That was a big change considering that the private sector lost of 33k jobs.
Further data from the Bureau of Economic Analysis (BEA) show that the economy expanded by 3.5% in the second quarter, representing a significant improvement from the first quarter.
These numbers came a few hours before the Federal Reserve left interest rates unchanged between the 4.25% and 4.50%. Economists expect that the Fed will cut interest rates either in September or the October meeting.
Donald Trump has been pushing the Federal Reserve to cut interest rates by as much as 300 basis points. He believes that interest rate cuts are costing the economy billions of dollars in interest payments and is holding it back by making it more expensive for people to own homes.
The GBP/USD pair will next react to the upcoming US PCE report, the Fed’s preferred inflation gauge, which is scheduled to be released on Thursday. This data, together with the upcoming US nonfarm payrolls data will help the Fed to determine when to cut rates.
GBP/USD Technical Analysis
The daily chart shows that the GBP/USD exchange rate has been in a strong bearish trend in the past few days. It has formed a head-and-shoulders pattern, a popular bearish continuation pattern.
The pair has formed a head-and-shoulders pattern, a popular bearish reversal pattern. It has also moved below the key support at 1.3370, the neckline of this pattern.
The pair has moved below the 50-day moving averages. Also, the MACD and the Relative Strength Index (RSI) have all pointed downwards. Therefore, the GBP/USD pair will likely continue falling as sellers target the support at 1.3000.
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Crispus Nyaga is a financial analyst, coach, and trader with more than 8 years in the industry. He has worked for leading companies like ATFX, easyMarkets, and OctaFx. Further, he has published widely in platforms like SeekingAlpha, Investing Cube, Capital.com, and Invezz. In his free time, he likes watching golf and spending time with his wife and child.