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Bearish Outlook Ahead of FOMC Minutes

The GBP/USD reacted mildly to important economic news on Tuesday. In a note, the International Monetary Fund (IMF) said that the UK economy will likely not sink into a recession later this year. 

  • Set a sell-stop at 1.2370 and a take-profit at 1.2300.
  • Add a stop-loss at 1.2525.
  • Timeline: 1 day.
  • Buy the GBP/USD pair and set a take-profit at 1.2525.
  • Add a stop-loss at 1.2425.

The GBP/USD exchange rate was little changed after the relatively encouraging economic data from the United States and the UK. The pair was trading at 1.2417, where it has been in the past few days while the US dollar index has been stuck at $103.9.

The GBP/USD reacted mildly to important economic news on Tuesday. In a note, the International Monetary Fund (IMF) said that the UK economy will likely not sink into a recession later this year. Instead, the organization warned that the biggest challenge will be inflation, which it expects will remain at an elevated level for longer.

The pair also reacted to a statement by Andrew Bailey, the head of the Bank of England (BoE). In a statement, he said that the bank’s model on inflation was not delivering accurate results. He noted that he believes that inflation will continue falling more gradually in the coming months.

The UK will publish the latest consumer and producer inflation data on Wednesday. Most analysts believe that the country’s inflation dropped from 10.1% in March to 8.3% in April. They expect that core inflation remained unchanged at 6.2%.

Meanwhile, the US published encouraging economic data on Tuesday. New home sales jumped from 4.0% in March to 4.1% in April. Precisely, the number of new home sales rose to 663k in April. Another report showed that the services PMI increased from 55.1 in May.

The Federal Reserve will publish the minutes of the last meeting. In that meeting, the bank decided to hike interest rates by 0.25% to between 5% and 5.25%. These minutes will provide more information about what the committee deliberated. They will also provide more information about what to expect.

The GBP/USD pair has been moving in a slow downward trend in the past few days. It has formed a descending channel shown in black. The pair has moved below the 50-period moving average and the important psychological level at 1.2500. It has also dropped below the Ichimoku cloud.

The MACD has formed an ascending channel as well, which is a sign of divergence. Therefore, the pair will likely continue falling if bears manage to push it below the support at 1.2370. A move below that level will bring the next support at 1.2300 into view.


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