Bearish view
- Set a sell-limit at 1.2847 and a take-profit at 1.2680.
- Add a stop-loss at 1.2950.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.2800 and a take-profit at 1.2900.
- Add a stop-loss at 1.2700.
The GBP/USD pair moved sideways as a risk-off sentiment spread in the financial market following last week’s downgrade of the US economy. The pair rose to 1.2773, a few points above last week’s low of 1.2621.
UK house prices retreated
The GBP/USD exchange rate was in a tight range as traders reacted to last Friday’s US consumer price index (CPI) data. According to the Bureau of Labor Statistics, the American economy added 187k jobs in July while the unemployment rate dropped to 3.5%.
The next key US data to watch will be the upcoming US consumer price index (CPI) data. Economists expect the data to show that the headline CPI rose from 3.0% to 3.3% in July while core inflation remained at 4.8%.
While inflation is dropping, there is a challenge in the energy market. Brent and West Texas Intermediate (WTI) rose on Monday after Saudi Arabia extended its supply cuts and as the war in Ukraine continued. Therefore, there is a likelihood that inflation will be sticky for a while.
Therefore, there is a likelihood that the Fed will hike interest rates by another 0.25% in September. Statements by Fed officials like Raphael Bostic and Michele Bowman confirmed that.
The GBP/USD pair wavered as the market moved on past the credit rating by Fitch. In a statement, the ratings agency warned about the country’s debt and the soaring budget deficit.
The other important data came from the UK, where data by Halifax showed that the country’s house price index (HPI) dropped by 0.3% in July leading to a YoY decline of 2.4%.
GBP/USD technical analysis
The GBP/USD pair formed a small long-legged doji pattern last Friday. In price action analysis, this pattern is usually a bullish sign. The pair has moved slightly above the 25-period and 50-period moving averages. It is also approaching the Ichimoku Cloud pattern.
The Relative Strength Index (RSI) has moved above the neutral point at 50 while the Stochastic Oscillator has moved to the overbought level. Therefore, the pair will likely retest the important resistance level at 1.2847, the highest point in June.
If this happens, the pair will then resume the bearish trend and retest last week’s low at 1.2621.
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