Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.2825.
- Add a stop-loss at 1.2650.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 1.2685 and a take-profit at 1.2600.
- Add a stop-loss at 1.2750.
The GBP/USD price continued retreating as the market reacted to the US credit rating downgrade and the upcoming Bank of England (BoE) decision. The pair tumbled to a low of 1.2682, the lowest level since July 6.
Bank of England's decision ahead
The US dollar index continued its comeback on Wednesday as the market reflected on the Fitch credit downgrade. In a lengthy statement, Fitch warned that the US is facing substantial risks as its public debt jump. The country’s debt has jumped to over $32 trillion while the deficit is expected to keep growing in the coming years.
The GBP/USD pair also dropped after ADP published the latest jobs numbers. The report showed that the private sector added 324k jobs in July, a higher figure than the median estimate of 189k. ADP also downgraded its estimate of June’s jobs numbers to 455k.
These numbers show that the American job market is still tight, with many sectors reporting significant labor shortages. The Bureau of Labor Statistics (BLS) will publish the latest initial and continuing jobless claims on Thursday. It will also publish the official NFP data on Friday.
The biggest catalyst for the GBP/USD pair will be the upcoming interest rate decision by the BoE. Most economists expect that the bank will decide to hike interest rates by 0.25% to 5.25%, the highest level in years.
Some analysts believe that this will be the final rate hike this year since the economy is slowing. Recent data showed that the country’s retail sales and manufacturing activity have retreated in the past few months. Therefore, more rate hikes will likely lead to a hard landing and prolonged stagflation.
GBP/USD technical analysis
The GBP/USD pair has been in a strong downward trend after peaking at 1.3147 on July 14th. It has dropped below the important support level at 1.2846, the highest point on June 16th. The pair also flipped the support at 1.2762 into a resistance.
The pair has dropped below the Ichimoku cloud and the 50-period moving average. At the same time, the Money Flow Index (MFI) is approaching the oversold level of 20. Therefore, the pair will likely have a relief rally on Thursday as investors buy the dip ahead or after the Bank of England decision. If this happens, the next important level to watch will be at 1.2800.
