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GBP/USD Forex Signal: Potential Downside Ahead of BOE

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There is a likelihood that it will have a bearish breakout as bears target the next key support at 1.2400.

Bearish View

Sell the GBP/USD pair and set a take-profit at 1.2450.Add a stop-loss at 1.2570.Timeline: 1-2 days.

Bullish View

Set a buy-stop at 1.2600 and a take-profit at 1.2680.Add a stop-loss at 1.2460.

The GBP/USD reacted mildly to the latest interest rate decision by the Federal Reserve. The pair is trading at 1.2565, which is slightly below the overnight high of 1.2618. This price is slightly above April’s low of 1.2400.

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Fed and BOE Decisions

The Federal Reserve did what most analysts were expecting. It decided to hike interest rates by 0.50%, the first time it did that in over 22 years. It was also the first time since 2006 that the bank decided to hike interest rates.

In addition to hiking rates, the Fed took the first steps of reducing its giant $9 trillion balance sheet. It also hinted that it will continue hiking interest rates in the upcoming meetings. The Fed also said that the neural rate was between 2% and 3% although many analysts believe that it is above that level.

The biggest risk for the Fed is that there will be a hard landing, where the economy sees a strong weakness because of these hikes. For one, recent data show that the previous 0.25% rate hike has had an impact on the economy as mortgage rates have risen to above 5%. Pending home sales have also declined in the past five straight month.

Data published this week sent mixed picture about the labor market. For example, on Tuesday, data revealed that the number of vacancies in the US have risen sharply. The same is true for people who are quitting their jobs. On Wednesday, data by ADP showed that the private sector added just 240k jobs in April.

The next key catalyst for the GBP/USD pair will be the interest rate decision by the Bank of England (BOE). Analysts expect that the bank will deliver the fourth rate hike since December.

GBP/USD Forecast

The four-hour chart shows that the GBP/USD pair has been in a tight range in the past few days. It is trading at 1.2500, which is also an important psychological level. It has dropped below the 25-day and 50-day moving averages while the MACD has been moving upwards. The pair has also formed what looks like a bearish flag pattern that is shown in black.

Therefore, there is a likelihood that it will have a bearish breakout as bears target the next key support at 1.2400.

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