Now that the pair has formed a break and retest pattern, there is a likelihood that it will continue its bearish trend this week.
Sell the GBP/USD pair and set a take-profit at 1.2500.Add a stop-loss at 1.3200.Timeline: 1-2 days.
Set a buy-stop at 1.3175 and a take-profit at 1.3250.Add a stop-loss at 1.3100.
The GBP/USD pair crashed to the lowest level since November 2020 as investors embraced the US dollar as a safe haven. It crashed to a low of 1.3037, which was about 8.45% below the highest level in 2021.
Sterling Under Pressure
The GBP/USD ignored the strong economic numbers published by the Office of National Statistics (ONS) on Friday.
The data revealed that the UK economy continued its recovery pace in January as the impact of the Omicron variant faded. The economy expanded by 0.8% in January from the previous month. This growth led to a 10% year-on-year recovery.
Other key economic numbers published on Friday were also strong. For example, manufacturing production rose by 3.6% in January while industrial production rose by 2.3%. Similarly, construction output rose by 1.1%.
This week will be an important one for the GBP/USD because of the top economic data from the UK. On Tuesday, the ONS will publish the latest jobs numbers. Economists polled by Reuters expect the data to show that the UK unemployment rate dropped from 4.15 to 4.0% in January this year.
If they are accurate, it will be the lowest figure since the pandemic started. They also expect that wage growth accelerated in January. Therefore, the BOE is under pressure to continue its tightening its policy.
Meanwhile, the US will publish the latest retail sales numbers, which will provide a good gauge of consumer spending. Analysts expect that sales slowed down slightly as inflation remained high.
The main mover for the pair will be the Federal Reserve decision scheduled for Wednesday. Analysts expect that the bank will deliver its first interest rate hike since the pandemic started this week. Some expect a 25 basis point hike while others see a 0.50% increase.
On the daily chart, we see that the GBP/USD pair has been in a strong bearish trend. It managed to cross the key support at 1.3175, which was the lowest level in 2021. The pair has also managed to move below the 25-day and 50-day moving averages. The Stochastic oscillator has dropped to the oversold level. The same is true with the Relative Strength Index.
Therefore, now that the pair has formed a break and retest pattern, there is a likelihood that it will continue its bearish trend this week.