Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2500.
- Add a stop-loss at 1.2750.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.2635 and a take-profit at 1.2735.
- Add a stop-loss at 1.2550.
The GBP/USD pair retreated on Monday as the US dollar index (DXY) bounced back. After peaking at 1.2733 last week, the pair has now pulled back to the psychological level of 1.2600. The dollar index, on the other hand, bounced back to $103.7.
Hawkish Fed and banking risks
The GBP/USD pair retreated as investors embraced a risk-off sentiment on Monday. US equities pulled back, with the Dow Jones shedding over 60 points and the S&P 500 falling by 0.70%. The US dollar index also pulled back after falling to a multi-monthly low last week.
These assets performed like this after Jerome Powell pushed back against rate cut hopes. In a statement, he reiterated that the bank still had more work to do in its battle against inflation. He also left the door open for an interest rate hike.
Still, there are signs that the Fed is done hiking rates. Durable goods inflation has dropped in the past six straight months. Energy prices have dropped, with the price of Brent and West Texas Intermediate (WTI) falling to $78.10 and $73.10, respectively.
Therefore, most economists still believe that the bank will leave rates intact in December and then cut them in the first half of 2024. The closely watched Fed Rate Monitor tool has a 99% chance of a pause in December and a 51% chance of a cut in March meeting.
The GBP/USD pair also slipped after a report by Moody’s warned about the global banking sector citing a surge in bad loans in key economies. It also cited the war in Ukraine and Israel as a major issue for the banking sector.
The GBP/USD pair will have several minor catalysts on Tuesday. S&P Global will publish the latest services and composite PMI figures from the UK and the US. Historically, the pair tends to react mildly to this report.
The US will also publish the latest JOLTs jobs vacancies report, which will come a few days ahead of the official NFP data.
GBP/USD technical analysis
The GBP/USD exchange rate has been in a strong uptrend in the past few weeks. Recently, however, it has lost momentum and pulled back slightly. Notably, it has formed a double-top pattern at 1.2733. In technical analysis, this pattern is one of the most accurate bearish signs.
The pair has also retreated below the 50-period and 25-period Exponential Moving Averages (EMA) while the Money Flow Index (MFI) has moved below the neutral point. Therefore, the outlook for the GBP/USD exchange rate is bearish, with the next point to watch being at 1.2500.
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