Bearish view
Sell the GBP/USD pair and set a take-profit at 1.3300.
Add a stop-loss at 1.3600.
Timeline: 1-3 days.
Bullish view
Buy the GBP/USD pair and set a take-profit at 1.3600.
Add a stop-loss at 1.3300.
The GBP/USD exchange rate dropped as investors moved to safety amid the ongoing crisis in the Middle East that has pushed crude oil prices higher. It retreated to 1.33550, down substantially from the year-to-date high of 1.3866.
Geopolitical Events and Key Macro Data
The GBP/USD pair came under pressure as crude oil prices soared when the markets opened on Monday. This price action coincided with the ongoing crisis in the Middle East, where the US and Israel bombed Iran and killed over 200 people, including students and the Supreme Leader.
Iran vowed a swift response and bombed allied countries in the region, including military bases in Qatar, Saudi Arabia, and Kuwait. It also launched hundreds of missiles in Israel and warned of more to come.
Therefore, the ongoing price action is a sign that investors are rushing to safe-haven assets as they wait for more details on how the war evolves.
The GBP/USD pair is also reacting to the recent US Producer Price Index (PPI), which showed that inflation continued rising in January this year. That is a sign that inflation is still a major challenge, which may push the Federal Reserve to cut interest rates in the near term.
The US will publish more macro data later this week, including the non-farm payrolls (NFP) data on Friday. Economists believe that the unemployment rate remained unchanged at 4.3% in January as the economy added about 60k jobs.
The US will publish more data this week, including the upcoming manufacturing and services PMI numbers. These numbers will provide more information on the state of the economy and what to expect from the Federal Reserve.
The UK, on the other hand, will also publish the latest PMI and house price index (HPI) data later this week.
GBP/USD Technical Analysis
The daily chart shows that the GBP/USD pair has remained under pressure in the past few weeks. It has already moved below the key support 1.3783, its highest point in July last year.
The pair has moved below the 50-day Exponential Moving Average (EMA). It also retreated below the Supertrend indicator, while the Relative Strength Index (RSI) has pointed downwards.
Therefore, the most likely outlook is bearish, with the next key target being at 1.3300. On the flip side, a move above the key resistance at 1.3600 will invalidate the bearish outlook.