Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.3370.
- Add a stop-loss at 1.3145.
- Timeline: 1-2 days.
Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.3145.
- Add a stop-loss at 1.3370.
The GBP/USD pair jumped and formed a bullish engulfing pattern after signs showed that the US economy was slowing. It was trading at 1.3278 on Monday morning, up from last week’s low of 1.3145.
US Economic Slowdown Continues
The GBP/USD pair rose after signs showed that the economy was slowing down amid Donald Trump’s tariffs. One way this is happening is that American companies are slowing hiring as they wait for more clarity on tariffs.
In a statement, on Friday, the Bureau of Labor Statistics (BLS) showed that the economy created just 73k jobs in July, missing the estimated 114k. The bureau also downgraded reports of the last two months, showing that the labor market has largely stalled.
Meanwhile, there are signs that the US inflation is rising, putting a risk that the economy was moving into a stagflation. A report released on Thursday showed that the Personal Consumption Expenditure (PCE) rose in June because of tariffs.
These numbers came after the Federal Reserve left interest rates unchanged between 4.25% and 4.50% as most analysts were expecting. Officials lamented that the economy was slowing and that tarifs posed a significant risk. These risks have risen after the US reached deals with a few countries.
Analysts now expect that the bank will cut interest rates by 0.25% in next month’s meeting. The goal for the cut will be to boost the economy as it continues to slow.
The next important catalyst for the GBP/USD exchange rate is the upcoming Bank of England (BoE) interest rates decision. Analysts expect the bank to slash interest rates as the British economy slows.
Like the Fed, the BoE’s challenge is that economy is slowing while inflation remains stubbornly high. A recent report showed that the headline inflation rose by 3.6% in the 12 months to June.
GBP/USD Technical Analysis
The GBP/USD exchange rate peaked at 1.3790 in July and then pulled back to a low of 1.3145 last week. It formed a head-and-shoulders pattern, a popular bearish continuation sign.
The pair moved below this pattern’s neckline at 1.3368 last week. It also moved below the 50-day and 100-day Exponential Moving Averages (EMA).
On the positive side, the pair has formed a bullish engulfing pattern, which happens when a big bullish candle follows and covers a small bearish one. Therefore, the pair will likely rise and retest the resistance at 1.3370 and then resume the downtrend.
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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.