Bearish view
Sell the GBP/USD pair and set a take-profit at 1.3450.
Add a stop-loss at 1.3650.
Timeline: 1-2 days.
Bullish view
Buy the GBP/USD pair and set a take-profit at 1.3650.
Add a stop-loss at 1.3450.
The GBP/USD pair has pulled back this week as investors remained concerned about the rising geopolitical tensions between the US and Iran. It dropped to the important support level at 1.3500 from this month’s high of 1.3656.
Sterling Drops Amid Rising Geopolitical Tensions
The GBP/USD pair retreated sharply as the fragile ceasefire between the United States and Iran showed signs of cracking. There were reports that Iranian missiles hit a US military vessel a few hours after Trump promised to escort ships cross the Strait of Hormuz.
In another sign of escalation, Iranian drones hit a major oil facility in the United Arab Emirates (UAE), a sign that hostilities will continue in the foreseeable future. As a result, crude oil prices resumed the uptrend and reached its highest point in days.
Therefore, there is a possibility that inflation will remain at an elevated level in the US and the UK. In a statement last week, the Bank of England (BoE) maintained its interest rates unchanged and hinted that they will hike interest rates in the next meeting.
The Federal Reserve, on the other hand, left rates unchanged between 3.50% and 3.75% rates and hinted that it will cut rates later this year. Still, market participants expect the bank to maintain rates unchanged for the remainder of the year as inflation continues rising.
The next key catalyst for the GBP/USD pair will react to the upcoming US JOLTs jobs numbers, which will provide more information about the labor market. This report will come a few days before the US releases the official non-farm payrolls (NFP) data.
Economists expect the upcoming report to show that the economy created 78k jobs in April after adding 153k jobs in the previous month. These jobs numbers will not include the thousands of people laid off after Spirit Airlines went bankrupt.
GBP/USD Technical Analysis
The daily timeframe chart shows that the GBP/USD pair pulled back to the important support level at 1.3500. This retreat happened after the pair formed a shooting star candlestick pattern on Friday.
A shooting star candle normally leads to a retreat as it signals that there were no buyers above the upper shadow. The pair is trading at the 38.26 Fibonacci Retracement level, while the two lines of the Percentage Price Oscillator have started moving sideways.
The pair will likely continue falling in the near term, potentially to the key support at 1.3450, its lowest level on April 13. A move above the resistance at 1.3655 will invalidate the bearish outlook.