Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.3700.
- Add a stop-loss at 1.3450.
- Timeline: 1-2 days.
Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.3450.
- Add a stop-loss at 1.3700.
The GBP/USD exchange rate continued rising and is hovering near the highest point this year as the US dollar index fell. It jumped to a high of 1.3592, up by over 11% from its lowest level this year.
US economic slowdown concerns
The GBP/USD pair rose this week as concerns about the US economy continued. A report by the Institute of Supply Management (ISM) showed that the manufacturing sector remained in a contraction zone in May as companies dealt with the ongoing uncertainties about trade.
The PMI dropped from 48.7 in April to 48.5 in May. A PMI figure below 50 is a sign that a sector is slowing. Another data by S&P Global showed that the PMI figure dropped to 50.2 in May.
These numbers mean that the US economy may continue slowing as companies wait for more certainty on trade. For example, the US reached a deal with China in Switzerland last month that allowed them to lower their tariffs.
However, since then, the two have accused each other of violating the agreement. The US has accused China of withholding its rare earth materials, while China has accused the US of unilateral actions like export controls on semiconductors and parts crucial to the airline manufacturing sector.
Therefore, there is a risk that the two countries will restart the trade war and impose tariffs. Another example is the US decision to increase tariffs of imported steel and aluminum to 50%. All these factors are causing uncertainty in the business community and may lead to a recession.
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The next catalyst for the GBP/USD pair will be the upcoming JOLTs job openings report, which is expected to show that the economy had 7.10 million openings, down from 7.19 million.
GBP/USD technical analysis
The GBP/USD pair has been in a strong uptrend since January 13 when it bottomed at 1.2100. It has jumped to a high of 1.3530, a few points below the year-to-date high of 1.3592.
The pair has moved above the crucial resistance level at 1.3430, the upper side of the cup-and-handle pattern, a popular bullish continuation sign.
It has remained above the 50-day moving average, while the Relative Strength Index (RSI) has pointed upwards. Therefore, the pair will likely continue rising as bulls target the resistance at 1.3700.
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