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Bearish view
- Sell the GBP/USD pair and place a take-profit at 1.1840.
- Add a stop-loss at 1.2225.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.2125 and a take-profit at 1.2250.
- Add a stop-loss at 1.1970.
GBP/USD was flat on Thursday amid mixed signals about the American economy. Sterling was trading at 1.2080, which was a few pips above this week’s low of 1.1970. This price is much lower than the year-to-date high of 1.2457 as focus shifts to the upcoming UK GDP data.
Mixed signals from the US
The GBP/USD price has dropped from its highest point this year as the US dollar index staged a strong comeback. The dollar index, which was approaching $100 earlier this month, has jumped to $103 after mixed signals from the US.
Corporate earnings have been a bit weak. According to FactSet, the earnings season has revealed that quarterly revenue growth dropped by 5.3% in Q4, the worst performance since Q3 of 2020 when earnings collapsed by 5.7%. Most companies issued weak forward guidance for the quarter.
Despite all this, many companies have continued hiring, with the number of vacancies remaining at over 10 million and the unemployment rate falling to 3.4%. As a result, the low jobless rate means that the Fed could take longer than expect to win its inflation data.
The economic calendar is muted on Thursday, with no major data from the United States and the UK. Therefore, traders will continue reflecting on the state of the market after last week’s Fed and BoE decisions and the strong American jobs data.
Looking ahead, the Office of National Statistics (ONS) will publish the latest GDP numbers on Friday. Economists expect the data to show that the economy contracted by 0.3% in December as the strikes in core parts of the economy continued. The agency will also publish the latest business investment and trade numbers for Q4.
GBP/USD forecast
The GBP/USD price has been in a downward trend in the past few days. It fell to a low of 1.1970 this week, the lowest point since January 6. The pair has crossed the 50-day moving average and the important resistance point at 1.2100 (Jan 2 high). At the same time, the Relative Strength Index (RSI) moved slightly below the neutral point at 50.
Therefore, with traders expecting weak UK GDP data on Friday, the outlook of the GBP/USD pair is bearish. The next level to watch will be at 1.1840 (January 6 low). The stop-loss of this trade will be at 1.2200.
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