Forex Trading Idea GBP/USD

Strategy

Buy 1.3825 for 1.4100 with a stop below 1.3710

Technical View

After reaching a high of 1.4241 on 24 February 2021, price made another attempt to push above this high but was unsuccessful. As a result, price declined to a low of 1.3627 on 20 July this year but we think this could be the end of the decline and correction. The low is also close to the Fibonacci 62% correction point of the big rally that led price to 1.4241. This could be a sign of a possible end to the correction as well. Price is now likely to push higher towards 1.4085 and maybe to the previous high of 1.4241 in the next few months ahead.

Stochastic may be declining but MACD remains bullish. The fast line of the MACD indicator could be turning around from the zero line as well, which could be a hint of a bullish price trend ahead as well.

Fundamental View

On 4 August, the Bank of England kept its cash rate at 0.1% as expected but the BOE made a decision to lower the threshold that would unwind its quantitative easing. This could be the first steps to tightening which is expected by the end of 2021. If that is the case, the Bank of England is likely to tighten before the Federal Reserve.

Federal Reserve Chairman Powell has insisted that inflation is transitory and there is still a long way before the U.S. is ready to start tapering and raise interest rate. Several Fed’s officials have started to speak up for tapering but the camp is at best mixed. Recent data from US labour to consumer inflation data have shown that there is no necessity to hike interest rate. Last Friday consumer confidence also shows consumer sentiment slumping to its lowest since 2011 amid acceleration in COVID-19 inflections caused by the fast-spreading Delta variant.

COVID-19 inflections are fast rising in the U.S. which is a worry, while the UK has more or less recovered from the pandemic. In fact, UK is reopening its economy and easing its COVID-19 restriction. Fans can now watch football matches which are likely to lift the UK economy. UK re-opening is likely to benefit the UK economy while the U.S. grasps with COVID-19 inflections.

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