Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.3425.
- Add a stop-loss at 1.3785.
- Timeline: 1-2 days.
Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.3785.
- Add a stop-loss at 1.3425.
The GBP/USD exchange rate pulled back sharply as the US Dollar Index (DXY) rebounded after the trade war resumed. The pair dropped to a low of 1.3590, down from the year-to-date high of 1.3785.
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FOMC Minutes Ahead
The GBP/USD pair has crashed in the past few days as concerns about trade have resumed. Donald Trump sent letters to numerous countries warning them about the upcoming tariffs.
Most of these countries will be subject to tariffs exceeding 20% starting from August 1, unless they reach a deal with the United States. Fortunately for the UK, its government reached a limited agreement with the US in May.
The US dollar index rose to $97.6, up from last month’s low of $96, while American equities dropped for the second consecutive days. The Dow Jones and the S&P 500 indices fell by 160 and 6 points, respectively.
Meanwhile, the GBP/USD pair also retreated as copper prices rose by over 17% after Trump said that he would implement a 50% tariff on the metal, a move that would lead to higher inflation.
The next important catalyst for the GBP/USD pair will be the upcoming FOMC minutes for the last meeting, in which Fed officials decided to leave interest rates unchanged between 4.25% and 4.50%.
The dot plot indicated two potential interest rate cuts later this year. With the labor market strengthening, the bank is likely to hold interest rates steady in the upcoming meetings.
The only other notable data to watch this week will be the UK GDP report on Friday. Economists expect the data to show that the economy grew a bit in May after contracting by 0.3% in April. The UK will also publish the latest manufacturing and industrial data.
GBP/USD Technical Analysis
The daily chart shows that the GBP/USD exchange rate has pulled back in the past few days. It moved from a high of 1.3785 last week to the current 1.3585.
The pair has formed an ascending channel and is now between it. Also, the MACD and the Relative Strength Index (RSI) have formed a bearish divergence pattern.
Therefore, the pair will likely continue falling as sellers target the key support at 1.3430, the highest swing in 2024. A move above the year-to-date high of 1.3785 will invalidate the bearish view.
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