Stagflation Hits! GBP/USD Downtrend Remains Intact

Summary:

The Confederation of British Industry lowered its forecast for U.K. economic growth on Tuesday, predicting that the war in Iran would drive up energy prices and squeeze living standards.

SELL GBPUSD

Close Time

CLOSED

1.33873

Entry Price

1.31000

1.36000

1.32924 +0.00051 +0.04%

74.1

Pips

Profit

1.31000

1.33132

Exit Price

1.33873

Entry Price

1.36000

Fundamentals

Two surveys released Tuesday showed that British consumers increased spending in May after cutting back in April, but spending on travel fell for the third straight month, indicating that people remain cautious about the economic impact of the war in Iran. Hot weather, meanwhile, boosted sales of clothing and other goods. The Confederation of British Industry (CBI) on Tuesday lowered its forecast for UK economic growth and predicted that unemployment would rise to its highest level in more than a decade as the war in Iran drives up energy prices and squeezes living standards. Consumer price inflation is expected to peak at 3.7% in the first quarter of next year, up from 2.8% in April, a rise similar to the Bank of England’s forecast.

At this stage, market sentiment and position-taking have largely shifted to a wait-and-see mode, with all attention focused on Wednesday’s upcoming U.S. May CPI inflation data. As the final major core inflation report ahead of the Federal Reserve’s June policy meeting, this CPI result will directly influence the tone of the statement at new Chair Wosh’s first policy meeting. The market widely anticipates that if inflation data once again exceeds expectations, the Fed will likely remove any remaining dovish language from its policy statement, while also raising the quarterly interest rate dot plot, shifting to an overall more hawkish policy stance.

Technical Analysis

On the daily chart, the GBP/USD pair shows Bollinger Bands widening downward and moving averages diverging downward, indicating a high probability of further declines. With the RSI at 45, market sentiment is predominantly bearish. On the four-hour chart, however, the Bollinger Bands are narrowing, moving averages are flattening, and the MACD has formed a golden cross, suggesting the price may rebound to around 1.34. The RSI stands at 50, with market participants adopting a wait-and-see approach. Strategically, look to sell on rallies.

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Trading Recommendation

Trading Direction: Sell

Entry Price: 1.339

Target Price: 1.31

Stop-Loss Price: 1.36

Support Levels: 1.32, 1.30, 1.28

Resistance Levels: 1.37, 1.38, 1.41

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Stagflation Hits! GBP/USD Downtrend Remains Intact

Risk Disclosure