GBP/USD Signal: Neutral Outlook But A Bearish Breakdown Is Possible

Neutral but leaning bearish. Selling potential at 1.2500, buying at 1.2700. Watch for Fed minutes, with analysts bullish on Sterling's future.

 

Bearish view

  • Sell the GBP/USD pair and set a take-profit at 1.2500.
  • Add a stop-loss at 1.2700.
  • Timeline: 1-2 days.

 

Bullish view

  • Set a buy-stop at 1.2610 and a take-profit at 1.2700.
  • Add a stop-loss at 1.2530.

(Click on image to enlarge) 

GBP/USD Signal Today - 20/02: Neutral, Bearish Risk (Graph)

The GBP/USD continued in a consolidation phase even some analysts predicted that sterling will continue doing well this year. Sterling was trading at 1.2600 on Tuesday, where ir has remained stuck in the past few days. It has, nonetheless, performed better than other European currencies like the euro and Swedish krona.

 

Analysts are bullish on sterling

Some analysts believe that the British pound has more upside in the coming months even as the country’s economy worsens. In a note, analysts at Bank of America noted that the GBP/USD pair would jump to 1.3000 later this year, arguing that it had emerged as the dollar of Europe.

The same view was shared by analysts at Credit Agricole, who believe that the Bank of England will likely maintain a hawkish tone in the coming months. Besides, the country’s inflation is sitting at over 4%, double the Bank of England target rate.

This means that the Bank of England (BoE) has room for more rate hikes than the ECB and the Federal Reserve. If it does not hike, the bank will likely hold rates higher for longer to fight the elevated inflation.

The challenge for the BoE is that an extremely hawkish tone will likely make the situation in the UK worse. For one, the number of companies filing for bankruptcy protection have jumped sharply in the past few months. Most of these companies are citing the high-interest rate environment that has made access to capital difficult.

The forex market will be muted on Tuesday since the UK and the US will not release any economic data. Therefore, all eyes will be on the upcoming Federal Reserve minutes, which will provide more information about the state of the economy.

 

GBP/USD forecast

The GBP/USD exchange rate has drifted downwards in the past few weeks. It now sits slightly below the important support level at 1.2600, its lowest swing in December last year. The pair has retreated slightly below the 50-period moving average and the 23.6% Fibonacci Retracement level.

The MACD indicator has remained slightly below the neutral point. Therefore, the outlook for the pair is bearish, with the initial support level being at 1.2518, its lowest point on February 5th. The stop-loss for this trade will be at 1.2700.


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