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GBP/USD Forex Signal: Double Top Points to a Deeper Pullback – 25 October 2022

The GBP/USD pair reacted mildly after the Tories selected Rishi Sunak to be the new prime minister.


Bearish view

Sell the GBP/USD pair and set a take-profit at 1.1063.Add a stop-loss at 1.1500.Timeline: 1-2 days.

Bullish view

Buy the GBP/USD pair and set a take-profit at 1.1500.Add a stop-loss at 1.1150.

The GBP/USD price moved sideways as investors welcomed the new developments from the UK. It was trading at 1.1292, which was slightly below last Friday’s high of 1.1406. This price is a few points below this month’s high of 1.1500.

Rishi Sunak becomes UK prime minister

The GBP/USD pair reacted mildly after the Tories selected Rishi Sunak to be the new prime minister. He replaces Liz Truss, who lasted 44 days on the job after her relatively unpopular tax cuts.

Investors believe that Sunak is a safe pair of hands at a time when the country is going through a tough period. In his previous campaign, he advocated for modest tax increases to bridge the budget deficit.

The appointment will see the political drama settle at least for now. However, analysts believe that there are potential risks ahead. For one, Sunak is a divisive figure among conservatives since Boris Johnson’s supporters believe that he compromised his administration.

At the same time, the UK faces some fundamental challenges. Energy prices are rising while the cost of government borrowing has jumped sharply due to Bank of England’s rate hikes. There are also significant Brexit risks.

Meanwhile, data published on Monday showed that business activity slowed down again in October. The flash PMI dropped to 47.3 in October from the previous 49.5. A reading below 50 is a sign that the sectors are contracting.

According to the S&P, the services sector weakness contributed to the most weakness. Most companies warned that the rising cost of doing business was affecting their operations. Elsewhere, in the United States, the manufacturing and services PMIs declined to 49.9 and 46.6, respectively.

The main catalyst for the GBP/USD price will be the upcoming US consumer confidence data. Economists expect that confidence dropped from 108 in September to 106.5 in October.

GBP/USD forecast

The GBP/USD price retreated slightly as investors refocused on the ongoing UK economic challenges. It dropped below the 50% Fibonacci Retracement level. It remains slightly above the 50-period moving average.

The pair has formed a small double-top pattern at 1.1407. The neckline of this pattern is at 1.1055. In price action analysis, this pattern is usually a bearish sign. Therefore, the pair will likely have a bearish breakout in in the coming days. If this happens, the next key level to watch will be at 1.1055.

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