GBP/USD Forex Signal: Bears in Tight Control

GBP/USD is falling because of the overall strong dollar

Bearish idea

 

  • Sell the GBP/USD so long as it is below 1.3600.
  • The pair has formed a double-top, which is considered bearish
  • Set a take-profit at 1.3500 and a stop loss at 1.3700.

Bullish idea

  • Set a buy stop at 1.3600.
  • Add a take-profit at 1.3700 and a stop loss at 1.3500

The GBP/USD price is under pressure ahead of a key speech by Andrew Bailey, the Bank of England (BOE) governor. The rising number of coronavirus cases in the UK and the relatively strong US dollar have also contributed.

Will Bailey change tune?

Andrew Bailey will be in the spotlight today as he delivers his second main speech this year. In it, traders will be watching out for what he says about negative interest rates as the UK economy continues to deteriorate.

Last week, after a Monetary Policy Committee (MPC) member supported negative rates in the UK, Bailey responded by warning about their complexity. He argued that such rates would affect UK banks, which are key employers, especially in London.

However, economic numbers released after the speech showed that the UK economy is deteriorating faster-than-expected. On Friday, numbers showed that industrial production, manufacturing production, and trade performed worse-than-expected in December. And today, data from Rightmove showed that the house price index declined by 0.9% in December.

Therefore, faced with these issues, traders will be watching out whether he remains convinced about negative rates when he delivers a speech at 13:30 GMT.

Meanwhile, the GBP/USD is falling due to the rising number of coronavirus cases in the UK even as most parts remain in lockdown. The country confirmed more than 40,000 cases yesterday, bringing the total to more than 3.12 million. More than 88,500 people have died.

As such, the UK risks having another contraction in the fourth quarter of last year and in the first quarter of this year.

Further, the GBP/USD is falling because of the overall strong dollar. The dollar index is up by about 0.10% due to the rising coronavirus risks. It is also rising ahead of the Joe Biden inauguration on Wednesday this week.

GBP/USD Technical Outlook

The GBP/USD formed a double-top pattern last week at the 1.3700 level. This price was slightly below the upper side of the blue ascending channel. On the four-hour chart, the 25-period and 15-period exponential moving averages (EMAs) have also made a bearish crossover.

Therefore, the pair will possibly continue falling, with the next key point of interest being at 1.3500. This is 0.55% below the current level. The invalidation point of this thesis will be at the double-top point at 1.3700.

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Crispus Nyaga
Crispus Nyaga is a financial analyst, coach, and trader with more than 8 years in the industry. He has worked for leading companies like ATFX, easyMarkets, and OctaFx. Further, he has published widely in platforms like SeekingAlpha, Investing Cube, Capital.com, and Invezz. In his free time, he likes watching golf and spending time with his wife and child.