GBP/USD was quite bullish since last October, but it has been trading on a bearish trend since mid-July, forming successively lower tops, which can be
GBP/USD was quite bullish since last October, but it has been trading on a bearish trend since mid-July, forming successively lower tops, which can be attributed to the strengthening of the USD but also a weakening GBP. The UK economy has displayed strong indications of slowing down, and perhaps moving toward a recession soon, fueled by elevated consumer inflation in comparison to the US and the lack of growth in public sector wages.
Consequently, this currency pair has been consistently forming lower peaks since the middle of last month, and it faces the 50 SMA (yellow) on the daily chart. This moving average is functioning as a support level, holding the decline on Thursday and we saw a bounce higher on Friday.
However, that didn’t last long and this pair closed the week right at the 100 SMA. Today we are not seeing much of a price action on this pair and the price is sticking to this moving average, which is a bearish signal, so a breakout to the downside seems inevitable, since sellers broke below the neckline from the head and shoulders pattern.
GBP/USD pair has been forming a head and shoulders pattern which is a leading indicator, suggesting that a currency pair, or any tradeable asset, might be on the verge of a bearish breakout, effectively ending the previous upward trend which lasted for almost 10 months. Adding further credibility to this bearish outlook is the recent breach below the neckline of this pattern. The neckline which stood above 1.26 acts as a crucial support zone within this formation. After achieving a successful close below it, as the GBP/USD pair managed to do last week, often translates into a sell signal.
The FED on the other hand is not giving signals of pausing and eventually stopping rate hikes, which has turned traders bullish on the USD and bearish on risk currencies. We have been selling retraces higher on this pair and with the GBP displaying weakness against the Euro as well, we plan on remaining short.
GBP/USD
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