British pound may test support again

26 July 2023 239
British pound may test support again

The GBP/USD currency pair is attempting to rebound from the support level. At the same time, the situation in the UK economy is much worse than in the US. The latest British PMI data showed a slowdown in business activity stronger than expected. This is true for both the manufacturing and service sectors. The US PMI, on the contrary, was better than forecast, indicating economic stability.

On the one hand, US inflation is returning to normal, which means the end of the policy tightening cycle. This will cause the dollar to depreciate against other currencies. On the other hand, UK inflation is much higher, meaning a more intense depreciation of the local currency. In light of the strong US economy, the regulator has no obstacles to raise interest rates or keep them at the same level for a longer time period.

As of today, experts have no doubt about another 25-basis-point interest rate hike by the US Federal Reserve (Fed) on July 26. However, the officials' comments will now be of more importance as they determine the dynamics of assets.

If the regulator states its intention to halt the cycle of rate increases, the dollar index will weaken. But in case of assumptions about more severe policy tightening or confident statements on its intention to implement it, a reversal of the currency and panic in the market will happen.

Looking back at the regulator's latest comments, the strong signal on future changes in the key rate may be repeated.

According to the technical analysis, the GBP/USD currency pair has rebounded from the support line after the corrective movement in recent weeks. Technically, there is a potential for the British pound to grow, but fundamental factors outweigh it. Today's Fed meeting may bring surprises for market participants. The regulator's comments may be rather tough. This is needed for a convincing win over inflation. Therefore, there is a chance of a second attempt to break the lower limit of the uptrend.

The downside target will be the local low and the 0.382 Fibonacci level from the whole growth wave, which corresponds to the price of 1.281. A Stop-loss will be set at rising above 0.236 Fibonacci level at 1.296. In this case the correction scenario is canceled.

GBPUSD is likely to decline:

Take profit – 1.281

Stop-loss – 1.296

This content is for informational purposes only and is not intended to be investing advice.

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