The GBPUSD currency pair yesterday experienced the strongest daily decline since July this year. Quotes quickly made their way from the local highs just above the 1.23 mark to the 1.22 level. Today there is a small rebound, during which the bulls are trying to bring 1.22 back under their control. However, the fundamentals are more inclined to a further decline in the GBPUSD.
The reason for the beginning of the pound weakening against the dollar and other major currencies was yesterday's statistics on the UK economy. Only the data on Gross Domestic Product (GDP) were in line with analysts' expectations. At the same time, the figures on industrial production and the trade balance were noticeably weaker than forecasts. The confidence of market participants in the fact that the Bank of England will not raise the key rate has strengthened significantly. These expectations will put pressure on the British currency.
At the same time, the dollar strengthened after the publication of data on consumer inflation in the US for September. The main indicator of price growth, contrary to forecasts of a decline to 3.6%, remained at the August level of 3.7%. And although core inflation slowed from 4.3% to 4.1% in line with analysts' expectations, the US currency still experienced a sharp rise in buying.
Additional demand for the dollar was stimulated by auctions of the US Ministry of Finance for the placement of bonds. Short-term securities were sold without any problems, but there were difficulties with the issue of 30-year treasury bonds. Investors did not agree with the initially proposed level of yield, considering it to be too low. As a result, the US authorities had to significantly increase their yield to more than 4.8%. Just a month ago, the same bonds were traded at a yield of 4.35%. Such changes increase the attractiveness of the dollar instruments of the financial market.
The Stochastic indicator on the daily chart turned downward from the overbought zone and confirms the GBPUSD sell signal. The nearest target of the bears may be the level of 1.21.
The following trading strategy may be offered:
Sell the GBPUSD at the current price. Take profit – 1.21. Stop loss – 1.23.
Also, traders can use a Trailing Stop instead of a fixed Stop loss at their discretion.
This content is for informational purposes only and is not intended to be investing advice.
