Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.3100.
- Add a stop-loss at 1.3300.
- Timeline: 1-2 days.
Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.3300.
- Add a stop-loss at 1.3100.
The GBP/USD pair crashed as the US Dollar Index (DXY) surged by over 1.3% after the initial US and China trade talks. It plunged to a low of 1.3165, its lowest level since April 15 and substantially lower than the year-to-date high of 1.3430.
Demand for US assets jump
The GBP/USD pair crashed as the US dollar jumped against most currencies as demand for US assets jumped. For example, the stock market boomed, with the top benchmark indices like the Dow Jones and S&P 500 soaring by over 2%. They are now nearing their all-time highs, a substantial recovery after they moved into a correction in April.
The pair dropped after the US and China agreed to cut some of its tariffs after the two day meeting in Switzerland. As a result, investors hope that the two countries will ultimately end their hostilities completely in the coming months.
Therefore, the US dollar’s performance is a reversal of what happened when Trump unveiled his tariffs in April. At the time, the US dollar crashed as foreign currencies like sterling and gold surged. The theory was that Trump’s hostilities would make US assets unattractive.
The next key GBP/USD news will come from the UK, where the Office of National Statistics will publish the latest UK jobs numbers. Economists expect the data to show that the unemployment rate rose slightly in March to 4.5% as the average earnings held steady above 5%. The ONS will also release the latest GDP data later this week.
Top Forex Brokers
The other crucial data will be from the US, where the Bureau of Labor Statistics will publish the latest Consumer Price Index (CPI) data on Tuesday. This is an important report that forms part of the Federal Reserve's dual mandate, with the other one being on the labor market.
Economists predict that consumer prices rose a bit in April as the impact of tariffs started to be felt. This report comes a week after the Federal Reserve left interest rates unchanged.
GBP/USD technical analysis
The GBP/USD pair retreated to a low of 1.3180, its lowest level since April 15 this year. It has fallen from the year-to-date high of 1.3428 as the US dollar surged.
The pair has moved below the lower side of the bullish pennant pattern shown in red. It also moved further away from the upper side of the cup and handle pattern pattern and the 25-day Exponential Moving Average (EMA).
The Relative Strength Index has dropped below the neutral point at 50, while the two lines of the MACD have formed a bearish crossover.
Therefore, the pair will likely continue falling as sellers target the next key support level at 1.1300.
Ready to trade our free daily Forex trading signals? We’ve shortlisted the best UK forex brokers in the industry for you.