Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.2250.
- Add a stop-loss at 1.200.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 1.2145 and a take-profit at 1.2050.
- Add a stop-loss at 1.2250.
The GBP/USD pair was flat on Monday morning as the focus remained on the ongoing turmoil in the UK and US bond markets. The exchange rate was trading at 1.2165, a few points above last week’s low of 1.2100.
UK and US bond market turmoil
The turmoil in the bond market in the UK continued last week as concerns about interest rates continued. In the UK, the cost of government borrowing surged to the highest level in more than 15 years. The 10-year gilt yield jumped to 4.7% while the 30-year rose to 4.69%.
The same crisis is happening in the US, where the yield of the 10-year rose to 4.92% while the 30-year soared to 5.07%, the highest point in more than two decades.
The impact of these hikes was seen on Friday when the US published its deficit numbers on Friday. According to the Treasury Department, the budget deficit surged to more than $1.7 trillion in the last financial year.
The government is now paying over $820 billion in interest and analysts expect the trend to continue. In addition to interest, the government collected less taxes, partly because of Trump tax cuts and last year’s weak stock market, which impacted capital gains taxes.
Meanwhile, the UK’s economic data showed that the economy was still going through a rough patch. Inflation remained significantly above the Bank of England’s (BoE) target of 2.0%.
On Friday, data by the Office of National Statistics (ONS) revealed that the country’s retail sales remained under pressure in September. These numbers meant that the country has moved into a deep retail recession.
Looking ahead, we will be looking at the prices of crude oil, which have an impact on inflation and the bond market. We will also focus on a statement by Jerome Powell and the latest US GDP data.
GBP/USD technical analysis
The GBP/USD pair has remained in a tight range in the past few days. Its attempt to have a bearish breakout found a strong support level at 1.2100. It now remains below the Woodie pivot point and the 50-period moving average.
The MACD has moved below the neutral point while the two lines of the Stochastic Oscillator has drifted upwards. Therefore, the pair will likely remain in this range on Monday. The key points to watch will be at 1.2000 and 1.2250.
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