Introduction
GBPUSD pair has been trading within a range for the past few weeks, with bears exerting dominance after the bulls failed to break the resistance at 1.26790. This article explores the possibility of a bearish breakdown in GBP/USD, considering both fundamental and technical factors. This will be very useful for traders in their decisions on how to trade GBP/USD.
Is GBP/USD Ripe for a Bearish Breakdown?
GBP/USD pair has been trading in a range for the past few weeks. The bears seem to have dominated the pair after they failed to break the resistance at 1.26790 at the beginning of the month. With the steady rejections suffered at this resistance level, many analysts now suppose that this pair is set for a long breakdown.
Going by some fundamental analysis, there are a few factors that could contribute to a bearish breakdown in GBP/USD. First, the UK economy is facing several challenges, including rising inflation and slowing economic growth. The UK’s GDP growth rate is expected to be just 0.3% in 2023, which is well below the average growth rate of 2% over the past decade. This slowdown is due to many factors, including the war in Ukraine, which has led to a decline in consumer confidence and business investment. This could trigger a sell-off in the pound, as investors become more risk-averse.
Second, the US dollar is strengthening once more in May, due to the high interest rate for the US dollar. The Federal Reserve also has refrained from stating categorically if it’s time to refrain from raising the interest rates which has given investors hope of possible more interest rate hikes the US dollar in 2023. This could also make GBP/USD less attractive to investors.
So what do we expect for GBPUSD?
The combination of rising inflation and slowing growth is discouraging for the pound. When investors are worried about inflation and economic growth, they tend to sell assets that are considered to be risky, such as the pound. This could lead to a sell-off in GBP/USD.
Should GBP/USD break down below 1.22300, it could trigger more selloffs with the next support levels seen at 1.19260. This level is the 200-day moving average, and it has been a key support level in the past. If the pair breaks below this level, it could open the door for a massive bearish trend with the target at 1.12976 levels.
Of course, it is also possible that GBP/USD will continue to trade in a range. However, the technical indicators suggest that a bearish breakdown is more likely. If you are trading GBP/USD, it is important to be aware of the risks and to have a plan in place in case the pair breaks down.
What do the technical indicators suggest about GBPUSD?
The key technical indicators are currently suggesting a bearish breakdown in GBP/USD.
i.) The RSI is below 50, which indicates that the momentum is bearish.
ii.) The MACD is crossing below the signal line, which is a bearish signal.
iii.) The stochastic oscillator is in overbought territory, which suggests that a sell-off is likely.
Conclusion
The GBP/USD pair appears to be ripe for a bearish breakdown. Fundamental factors such as challenges in the UK economy and a strengthening US dollar contribute to this possibility. Technical indicators, including the RSI, MACD, and stochastic oscillator, also suggest a bearish momentum. While a range-bound scenario cannot be ruled out entirely, traders involved in GBP/USD must acknowledge the potential risks and establish a comprehensive plan in case the pair breaks down. Additionally, choosing a reliable broker such as the eToro trading platform remains vital for investors seeking to long or short this very volatile pair.
Lynn Martelli is an editor at Readability. She received her MFA in Creative Writing from Antioch University and has worked as an editor for over 10 years. Lynn has edited a wide variety of books, including fiction, non-fiction, memoirs, and more. In her free time, Lynn enjoys reading, writing, and spending time with her family and friends.
