Technical Rejection and Macroeconomic Headwinds
We saw Sterling’s rally fail precisely at the 200-day moving average near 1.3400, which confirms our bearish outlook. This rejection signals that sellers are still in control of GBP/USD. We will treat any move back toward that level as an opportunity to build short positions. The Bank of England is trapped by stagflation, and we expect this to keep a lid on the pound. The UK’s economic fragility is clear, with the Office for National Statistics recently reporting that the economy grew just 0.6% in the first quarter after slipping into a recession last year. This weakness gives the BoE no good reason to support its currency, especially with an energy shock pushing inflation higher. The US dollar is in the driver’s seat ahead of Wednesday’s inflation data. A strong CPI print will reinforce the market’s view that the Federal Reserve will not be cutting rates in 2026, a significant shift from earlier expectations. Current WTI crude oil prices hovering near $80 a barrel support the narrative of persistent price pressures that will keep the Fed on hold.Trading Strategy and Positioning
Our strategy is to use rallies as selling opportunities as long as GBP/USD stays below the 1.3400 resistance. We see the path of least resistance as lower, targeting the early June support around 1.3300, particularly if US inflation is strong and Friday’s UK GDP data confirms a contraction. The technical setup and central bank divergence both point in the same downward direction. For our derivatives positions, we are considering buying GBP/USD put options with a strike near 1.3300 to position for the upcoming data releases. This offers defined risk if we are wrong but significant upside if the pair breaks lower as anticipated. Alternatively, selling call credit spreads with the short strike placed above the 1.3450 resistance level is another way to express this bearish view.Start trading now — click here to create your real VT Markets account.
