Lows Ahead as GBP Nears Key Support

It seems like the bearish trend will continue as bears target the key support level at 1.2418, which was the 23.6% Fibonacci retracement level.

Bearish View

• Sell the GBP/USD and set a take-profit at 1.2418.
• Add a stop-loss at 1.2550.
• Timeline: 1 day.

Bullish View

• Set a buy-stop at 1.2540 and a take-profit at 1.2600.
• Add a stop-loss at 22450.

The GBP/USD pair is hovering near its lowest level since May 20th after the positive data from the UK. The pair is trading at 1.2488, which is about 2% below the highest level on May 27th ahead of the important US inflation data.

US Dollar Stages Comeback

The GBP/USD pair has retreated in the past few days as investors focus on the relatively strong US dollar. The closely-watched dollar index has risen in the past two straight days as investors continue pricing more risks in the market.

Last week, the market received key warning signs from corporate America. Jamie Dimon, the CEO of the biggest bank in the United States, warned that the situation was worsening. Tesla’s Elon Musk also issued a similar warning.

A few weeks before, important companies like Walmart and Target which employ a vast number of Americans warned that inflation was a major challenge. Therefore, investors are now anticipating a potential recession, which explains why stocks have retreated.

The GBP/USD retreated after the better-than-expected jobs numbers from the US made the case that the Federal Reserve will continue tightening in the coming months. The bank has already committed to delivering at least three more 0.50% hikes in the coming meetings.

Looking ahead, the pair will react to the upcoming US consumer inflation data that will come out on Friday. Analysts expect these numbers to show that the headline CPI declined from 8.3% in April to 8.1% in May. Excluding the volatile food and energy prices, analysts expect that inflation fell from 6.2% to 5.9%. This will be a sign that inflation is now stabilizing.

The GBP/USD pair will also react to the reopening of the UK after the country’s long public holiday in honor of Queen Elizabeth.

GBP/USD Forecast

The GBP/USD pair formed a rising wedge pattern that is shown in black. In price action analysis, this pattern is usually a bearish sign. This breakout happened last week when it move below the 25-day and 50-day moving averages. Now, the pair is approaching the important support at 1.2465, which was the lowest level on June 1.

Therefore, it seems like the bearish trend will continue as bears target the key support level at 1.2418, which was the 23.6% Fibonacci retracement level.