Bearish view

• Sell the GBP/USD pair and set a take-profit at 1.1790.
• Add a stop-loss at 1.2100.
• Timeline: 1-2 days.

Bullish view

• Buy the GBP/USD pair and set a take-profit at 1.2100.
• Add a stop-loss at 1.1880.

The GBP/USD price drifted lower after more signs of the UK’s recession emerged and as the greenback staged a strong comeback. It dropped to a low of 1.1930, the lowest level since November 30th. Sterling has pulled back by 3.75% from its highest point in December.

More signs of UK recession

The UK is in a deep recession as slow wage growth coincides with high cost of living. Data published last month revealed that the country’s economy contracted in the third quarter. And analysts expect that it continued shrinking in Q4.

Manufacturing numbers published on Tuesday revealed that output declined at one of the fastest paces since 2009. S&P Global showed that the manufacturing PMI declined to a 31-month low of 45.3 in December. It was 46.5 in November.

These numbers mean that British manufacturers are struggling as sluggish demand intersects with the rising rate of inflation. In a statement, the statement added that the UK economy had little growth engine this year. As such, a contraction of the Q4 economy will mean that the UK has moved into a technical recession.

The GBP/USD price will react to the latest mortgage data from the UK. Economists expect the data to show that mortgage lending dropped to 3.7 billion pounds in November. The number of approvals dropped from 58.98k to 55k.

The other data to watch will be the ISM manufacturing PMI data from the US. Like in the UK, the data will likely show that the manufacturing PMI dropped to 48.5 in December. US manufacturers are facing significant challenges as growth slows.

The US will release the latest JOLTs job openings data. Economists expect that the economy had over 10 million job openings. The most important data will be the FOMC minutes.

GBP/USD forecast

The GBP/USD pair has been in a consolidation phase in the past few weeks. It made a bearish breakout as the US dollar index surged. As it dropped, the pair moved below the support at 1.1998, the lowest level on December 22.

The pair has formed a head and shoulders pattern and moved below all moving averages. An H&S pattern is usually a bearish sign. The pair will likely continue falling as sellers 1.1790, which is the fourth support of the Woodie pivot point at 1.1783.

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