Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.2350.
- Add a stop-loss at 1.2100.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 1.2100 and a take-profit at 1.2000.
- Add a stop-loss at 1.2200.
The GBP/USD sell-off faded on Wednesday as concerns about a global recession continued. It rose to a high of 1.2240, slightly above this week’s low of 1.2120. Sterling has rallied by 9.67% from the lowest level in November and by 18% above the year-to-date low.
Global recession risks
Investors are increasingly concerned about the rising risks of a global recession. The situation worsened on Wednesday after China published weak trade numbers. According to the statistics agency, the country’s exports dropped by 8.7% in November after dropping by 0.3% in the previous month. Imports dropped by 10.6% while the total trade surplus narrowed to $69.84.
Chinese economic numbers are important since the country is the engine that powers the global economy. On a positive side, the country has undone some of the most radical measures to contain Covid-19. For example, they ended some quarantine measures in public spaces. Other recession signs are the continuing yield curve inversion in the US and the UK.
Meanwhile, economic data from the UK showed that house prices continued dropping as interest rates rose. According to Halifax, house prices crashed at the fastest pace since 2008. Prices dropped by 2.3% in November and by 8.2% on a year-on-year basis. An average house price was selling at 285,579 pounds and analysts expect that the situation will get worse.
Therefore, the next major catalyst for the GBP/USD pair will be next week’s interest rate decisions by the Federal Reserve and the Bank of England (BoE). Economists expect that the two central banks will be less aggressive.
They expect that the Fed and the BoE will hike by 0.50% after hiking by 0.75% in the past several meetings. Other central banks like the Reserve Bank of Australia (RBA) and the Bank of Canada (BoC) have started pivoting.
GBP/USD forecast
The GBP/USD price has been in a strong bullish trend in the past few weeks. It has continued being supported by the 50-day moving averages while the Awesome Oscillator has moved to the neutral point. It is also above the ascending trendline shown in black. The Stochastic Oscillator has pointed upwards.
Therefore, the pair will likely continue rising as buyers target the next key resistance level at 1.2350. The stop-loss for this trade will be at the 50-day moving average.
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