GBP/USD Forex Signal: Brief Relief Rally Likely

The GBP/USD pair has been in a strong bearish trend in the past few weeks

Bullish view

• Buy the GBP/USD pair and set a take-profit at 1.2300.
• Add a stop-loss at 1.2050.
• Timeline: 1-2 days.

Bearish view

• Set a sell-stop at 1.2120 and a take-profit at 1.2050.
• Add a stop-loss at 1.2250.

The strength of the US dollar pushed the GBP/USD price to the lowest level since May 2020. It crashed to 1.2127, which was about 4.2% below the highest level this month. Other currencies like the Japanese yen and the euro also crashed against the greenback.

UK jobs data ahead

The UK economy is under a lot of pressure across the board. Retail spending has dropped as inflation has surged to a multi-decade high. At the same time, manufacturing and industrial production has dropped as companies scale back their spending.

On Monday, data by the Office of National Statistics (ONS) showed that the economy contracted for the second straight month in April. This decline was worse than what most analysts were expecting. In its report, the ONS warned that the situation will likely worsen going forward.

The next key data to watch will be on the country’s employment. Analysts expect the data to show that the unemployment rate dropped from 3.7% in March to 3.6% in April. If this number is correct, ut will be the lowest level in more than a decade. It will be a sign that the labor market is tightening.

Analysts also believe that the country’s wages continued to strengthen in April. With bonuses, they expect that wages rose by 7.6%. Excluding bonuses, they expect that wages rose by 4.0%. This wage growth is still lower than the country’s inflation growth.

The GBP/USD is also falling as investors price in a more hawkish Federal Reserve. The bank will start its meeting on Tuesday and deliver its decision on Wednesday. The baseline expectation is that the bank will hike by 0.50%. Some analysts believe that the bank could surprise with a 0.75% hike.

The BOE will then start its meeting on Wednesday and conclude it on Thursday. It is also expected to hike by about 0.25%.

GBP/USD forecast

The GBP/USD pair has been in a strong bearish trend in the past few weeks. Along the way, it has formed what looks like an inverted cup and handle pattern, which is usually a bearish sign. It remains below the 25-day moving average while the Bollinger Bands have widened. The Stochastic Oscillator has moved below the oversold level.

Therefore, the pair will likely have a relief rally as it forms the handle section of the cup and handle pattern. This could see it rise back to 1.2300 and then resume the bearish trend.