GBP/USD eased about 0.1% to around 1.3420 in Tuesday’s European session, as Sterling stayed under pressure while the Dollar extended a rebound. The US Dollar Index (DXY) edged up to near 100.05 after a sharp recovery on Monday, having earlier printed a fresh two-week high at 99.42. Focus now turns to US releases, including June JOLTS Job Openings at 14:00 GMT, seen at 7.45 million versus 7.594 million in May, and July Nonfarm Payrolls on Friday as markets gauge the Federal Reserve’s next steps.
On the charts, GBP/USD was last near 1.3423, holding above the 20-day exponential moving average at 1.3389, while a downward-sloping resistance line caps the topside with a break reference at 1.3473 and the next level at 1.3500. The Relative Strength Index sat around 54. A drop back under 1.3389 would shift attention to the July 28 low at 1.3274. Elsewhere, the background note says Sterling is the oldest currency (886 AD) and, on 2022 data, accounts for 12% of FX turnover, averaging $630bn a day; GBP/USD represents 11% of FX, with GBP/JPY at 3% and EUR/GBP at 2%.
Key Levels and Trading Strategies
We advise derivative traders to closely watch the 1.3470 resistance level on GBP/USD as the pair tests key downward-sloping trendlines in the coming weeks. With the pair currently trading near 1.3420, setting up short-term limit sell orders or buying put options near this barrier offers an attractive risk-to-reward ratio. If the exchange rate fails to break above 1.3473, we expect a rapid descent toward the 20-day exponential moving average at 1.3389.
Macro Drivers and Policy Backdrop
This bearish outlook is heavily supported by a recovering US Dollar, with the Dollar Index (DXY) bouncing back to 100.05. Recent economic data shows US employers added a resilient 175,000 jobs in previous months, keeping the national unemployment rate steady at around 4.1%. If the upcoming July Nonfarm Payrolls (NFP) data exceeds expectations this Friday, the dollar’s strength will likely crush any remaining sterling momentum.
Meanwhile, Bank of England Governor Andrew Bailey’s dovish tone confirms that we cannot count on rate hikes to rescue the pound, especially with UK inflation stabilizing near the BoE’s 2.0% target. Speculative traders have already adjusted to this reality, with the latest CFTC positioning data showing a notable rise in GBP net short contracts. This lack of policy support makes it difficult for the pound to sustain any rallies above the critical 1.3500 threshold.
To navigate this environment, we recommend utilizing bear put spreads targeting the late July support level of 1.3274. Traders looking to go long should hold off until a daily close print securely above 1.3500, which would invalidate the current downward trend. With the daily Relative Strength Index sitting at a neutral 54, there is ample room for a downward slide before the market becomes oversold.
