Bearish view
Sell the GBP/USD pair and set a take-profit at 1.3450.
Add a stop-loss at 1.3625.
Timeline: 1-2 days.
Bullish view
Buy the GBP/USD pair and set a take-profit at 1.3625.
Add a stop-loss at 1.3450.
GBP/USD remained under pressure this week as US-Iran tensions escalated and UK and US bond yields continued to climb. The pair retreated to 1.3515, down modestly from last month's high of 1.3672, with focus now shifting to upcoming UK and US macro data.
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Rising Global Risks Lead to a Stronger Dollar
The GBP/USD pair retreated after the US and Iran continued their attacks. In a statement, President Donald Trump said that the US launched another attack in response to Iran’s attempts to place mines in the Strait of Hormuz. He then warned of a stronger attack if Iran retaliated, which it did.
These attacks led to higher energy prices, with Brent rising to $95.15 and the West Texas Intermediate (WTI) reaching a high of $90. The two benchmarks have jumped by over 30% since the war started in February this year.
At the same time, global bond yields continued rising. The ten-year yield jumped to 4.80%, its highest level in years. In the UK gilts continued rising, with the ten-year gapping higher to 5.25%, its highest point since 2007. It has jumped from a low of 0.089% in 2021.
Bond yields are rising as investors continue focusing on the soaring spending by the US and the UK, and the fact that economic growth is slowing. In the US, recent data showed that consumer confidence slipped for three consecutive month. This is important because consumer spending is the biggest part of the US GDP.
Data released on Tuesday confirmed that the economy was slowing. The number of job openings in the US fell to 7.27 million in July, lower than the expected 7.33 million. Also, the ISM manufacturing PMI dropped from 55.6 to 54.6, lower than the average estimate of 55.6.
The US will publish the August private nonfarm payrolls data, which will come out a few days before the official nonfarm payrolls data.
GBP/USD Technical Analysis
GBP/USD pair has slumped in the past few days, a drop that started when it hit the crucial resistance level of 1.3656, its highest level in April this year. It has dropped below the crucial support of 1.3585, its highest level on July 15 this year.
The pair has dropped below the 25-day Exponential Moving Average (EMA), while the two lines of the Percentage Price Oscillator (PPO) have formed a bearish crossover pattern.
Therefore, the pair will likely continue falling, potentially to the key support level of 1.3450. This price coincides with the ascending trendline that connects the lowest swings on June 24 and July 28.
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