Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.3145.
- Add a take-profit at 1.3400.
- Timeline: 1-2 days.
Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.3400.
- Add a stop-loss at 1.3145.
The GBP/USD exchange rate was flat on Wednesday, August 6, as focus shifted to the upcoming Bank of England (BoE) interest rate decision. It was trading at the key support at 1.3300, down sharply from the year-to-date high of 1.3790.
Bank of England Interest Rate Decision
The GBP/USD pair was in a tight range as market participants waited for the Bank of England (BoE) interest rate decision.
Economists expect the bank to slash interest rates by 0.25% to 4%, from 4.25%. It has been cutting interest rates gradually since June last year as it battled the ongoing stagflation.
The bank is at a difficult spot, with the recent data showing that inflation remained at an elevated level in June. A report by the Office of National Statistics (ONS) showed that the headline consumer inflation rose to 3.6% in June, much higher than the bank’s target of 2.0%.
In recent statements, Governor Andrew Bailey, the bank’s governor, has guided the market towards interest rate cuts, arguing that the recent inflation pump was temporary.
The case for cutting interest rates is also because of the ongoing economic slowdown, which will accelerate because of Donald Trump’s trade war. A report released by S&P Global showed that the services PMI dropped to 51.8 from the previous 52.8.
The composite PMI also dropped from 52 to 51.5, a sign that the economy is deteriorating.
There will be no major economic data from the US and the UK today, August, 6. As such, the pair will remain in a wait-and-see as market participants await the upcoming BoE decision.
GBP/USD Technical Analysis
The daily chart reveals that the GBP/USD pair has been in a downtrend since July 1 when the bullish momentum ended. It has crashed below the 50-day and 100-day Exponential Moving Averages (EMA).
The pair has also moved below the key support level at 1.3368, the neckline of the head-and-shoulders pattern. A H&S is one of the most common bearish reversal patterns.
Therefore, the pair will likely rise and retest the neckline at 1.3370, and then resume the downtrend. If this happens, it will retest the key support at 1.3145, its lowest point on August 1. A move below that level will point to more downside, potentially to 1.3100.
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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.