Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2000.
- Add a stop-loss at 1.2240.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.2170 and a take-profit at 1.2250.
- Add a stop-loss at 1.2272.
The GBP/USD exchange rate has pulled back sharply ahead of a relatively busy week ahead. The pair retreated to a low of 1.2120 on Monday, the lowest level since October 6th. It has plunged by more than 1% from the highest level this month.
Key UK economic data ahead
The GBP/USD pair continued retreating as the recent US dollar sell-off took a breather. The dollar index rose to $106.45, higher than last week’s low of $104.50 as geopolitical risks continued rising.
Investors will continue watching developments in the ongoing war in Israel. The key event to watch will be whether Israel will go on with its invasion of Gaza and whether other Middle East countries like Iran will intervene.
An intervention by Iran or any other country will lead to higher oil prices, leading to more fears that inflation will remain at an elevated level for a while. It will also lead to more geopolitical risks and demand for the US dollar, which is a safe haven.
The GBP/USD pair will react to several important UK economic numbers this week. On Tuesday, the Office of National Statistics (ONS) will publish the latest UK employment numbers. Analysts believe that the country’s unemployment rate remained at 4.3% in August as the economy shed over 195k jobs in the three months to August. The key data to watch in the jobs report will be the country’s average earnings numbers.
The ONS will next release the closely watched consumer and producer inflation data on Wednesday. Economists expect the data to show that the headline CPI dropped from 6.7% in August to 6.5% in September. They also see it slipping slightly to 0.4% on a MoM basis.
Core CPI, which excludes the volatile food and energy prices, is expected to drop to 6.0% in September. The ONS will also publish UK’s retail sales data on Friday.
GBP/USD technical analysis
The GBP/USD exchange rate has made a major bearish breakout as the US dollar index bounced back. It retreated below the lower line of the rising wedge pattern, which is a popular bearish sign. The pair has also dropped below the key support level at 1.2272, the highest point on September 29th.
It has also moved below the 50-period moving average while the Relative Strength Index (RSI) has fallen below the neutral point. Therefore, the pair will likely continue falling, with the next support level to watch being the psychological level at 1.200.
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