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The pair will likely continue falling as sellers target the next psychological level of 1.1800.
Bearish View
- Sell the GBP/USD pair and set a take-profit at 1.1800.
- Add a stop-loss at 1.1975.
- Timeline: 1-2 days.
Bullish View
- Set a buy-stop at 1.1935 and a take-profit at 1.2000.
- Add a stop-loss at 1.1850.
The GBP/USD sell-off gained steam during the American and Asian sessions as the US dollar strength continued. The pair dropped to a low of 1.1880, which was the lowest point since 2020. It has crashed by about 12% in 2022.
UK Economic Outlook
The GBP/USD pair declined as the outlook for the UK economy worsened. On Monday, many unions representing rail workers announced that they will strike soon. This will be the biggest strike in over 25 years and will affect train passengers across the UK. The workers are protesting poor wages amid soaring inflation.
The UK government has asked unions to go back to the negotiating table and reach a deal. At the same time, groups representing rail companies urged their workers not to strike. Other unions, especially those representing postal workers, have warned of a major strike.
These strikes will affect the country’s economy at a difficult time when inflation has surged to the highest level in over four decades. House prices have surged while retail sales have all declined. Consumer confidence has slumped to the lowest level in over a decade.
The GBP/USD pair also declined as the US dollar strength continued broadly. The closely watched US dollar index rose to $106 as the currency rose against developed and emerging market currencies. The index rose as investors reacted to the strong labor market data.
On Friday, data published by the Bureau of Labor Statistics (BLS) showed that the economy added over 372k jobs in June while the unemployment rate remained at 3.7%. While the participation rate is still low, analysts expect that the Federal Reserve will continue tightening policies in the coming months.
The next key catalyst for the GBP/USD pair will be the upcoming US consumer inflation data. Analysts expect that inflation jumped to 8.8% in June.
GBP/USD Forecast
The four-hour chart shows that the GBP/USD pair has been in a strong bearish trend in the past few months. Recently, it formed an inverted cup and handle pattern that is shown in black. As it dropped in the overnight session, the pair managed to move below the lower side of the cup. It has also moved below the 25-day and 50-day moving averages.
Therefore, the pair will likely continue falling as sellers target the next psychological level of 1.1800. A move above the resistance point at 1.1950 will invalidate the bearish view.
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