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Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.1800.
- Add a stop-loss at 1.2155.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.2050 and a take-profit at 1.2160.
- Add a stop-loss at 1.1950.
The GBP/USD price declined slightly during the American and Asian sessions as the American bond yield curve inversion continued. It slipped to the psychologically important support level at 1.2000, which was slightly lower than this month’s high of 1.2155.
US yield curve inversion
The GBP/USD price pulled back as the market focused on the ongoing yield curve inversion. In the US, the bond yield has inverted to the lowest level since the 1980s. The yield of the 10-year rose to 3.73% while the two-year was at 4.7%.
Global bond yields have also inverted. The average yield of a sovereign debt that matures in ten years has moved below the one maturing in two years. Historically, a yield curve inversion is usually a sign of a recession.
The UK has already moved into a recession and the government expects that it will remain so for a while. Data published on Tuesday showed that the housing market is under pressure. Mortgage lending dropped to 3.97 billion pounds from the previous 5.88 billion pounds. This happened as the number of mortgage approvals retreated from 65.97k to 58.98k.
The GBP/USD pair also retreated after the relatively positive US consumer confidence data. According to the Conference Board, consumer confidence dropped from 102.2 in October to 100.2 in November. The decline was better than the median estimate of 100.0.
The next key economic data to watch will be the second estimate of the American GDP data. Based on the first estimate, analysts expect that the economy expanded by 2.7% in the third quarter, helped by robust consumer spending.
ADP will also publish its estimate of November’s private payrolls. Economists expect that the private sector added 200k jobs in November. These numbers will come two days ahead of the upcoming official NFP data.
GBP/USD forecast
Sterling has been in a strong bullish trend in the past few weeks. This rally appears to have waned after the pair found a strong resistance at 1.2155. As it pulled back, the pair moved slightly below the 25-period moving average. It remains slightly above the Ichimoku cloud while the Relative Strength Index (RSI) has been in a downward trend.
The pair will likely continue falling ahead of the upcoming US GDP, jobs, and pending home sales numbers. It will likely retest the important support level at 1.1800. The stop-loss for this trade is at 1.2155.
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