Despite the dramatic headlines of this past week, GBP/USD had already been on a downward trajectory. It failed to maintain above the 21-day Simple Moving Average (SMA) now at 1.3509. U.S. Donald Trump, to make pharma companies sweat, threatened up to 100% tariffs on imports of branded and patented pharmaceutical drugs. This announcement did a lot to deepen the cliff. Meanwhile the Pound Sterling gave back earlier gains. By the end of the week it was down over 30% against the U.S. Dollar, marking one of its largest drops ever.
The currency pair hit a seven-week low, falling beneath the key support levels of 1.3350. In fact, the 14-day Relative Strength Index (RSI) is still comfortably under the midline, suggesting further bearish prospects for GBP/USD. Analysts are still looking at the new market dynamics as the pound looks weak with continued economic turbulence unresolved.
Technical Analysis Reveals Weakness
GBP/USD fell to a significant low after being unable to remain above the 1.3500 mark. This fall heralds a disastrous new era for the Pound Sterling. The currency pair pierced through major supports, erasing the 100-day SMA at 1.3487. It even fell under the 50-day SMA at 1.3468. On an eventual closing basis, GBP/USD closed below the rising trendline support at 1.3462. This was enough to boost the bearish pressure around the pair even further.
A precise trading range constant market analysts agree: In order for a lasting recovery to happen, GBP/USD must eventually break through. It needs to close above confluence resistance zone around 1.3475. This blue area includes the 50-day SMA, 100-day SMA, and the long-term supportive trendline that has since flipped to resistance.
“Near-term risks to inflation are tilted to the upside and risks to employment to the downside.” – Chair Powell via Westpac analysts
The outlook is not encouraging. Considerable downside pressure on the pound in the weeks ahead could drive it even lower.
Economic Factors Influencing GBP/USD
Economic realities have been hugely important in determining GBP/USD’s direction. The decision to announce tariffs by President Trump and the accompanying rhetoric has roiled investor sentiment. These tariffs affect multiple sectors, such as pharmaceuticals where it injects more unpredictability into already volatile market assessments. With inflationary pressures at their highest levels in decades, traders are fearful of third order effects on employment impacts.
This 14-day RSI indicates that the bearish momentum will not fade away anytime soon. Continued downward pressure seems likely on GBP/USD. Given the current market environment with inflation measures and jobs data shifting countercyclically, this trend will continue until significant changes occur.
“Chair Powell emphasized that ‘near-term risks to inflation are tilted to the upside and risks to employment to the downside’, highlighting the challenges of balancing the Fed’s dual mandate in the current environment.” – Westpac analysts
The combined impacts of policy changes and key economic indicators will shape future moves for GBP/USD.
Future Projections and Support Levels
Looking ahead, GBP/USD has several obstacles to overcome before it can begin staging a recovery. Major resistance targets converge at the 21-day SMA at 1.3509 and the supply zone of 1.3600-1.3620. If the price stays strong above this structure, it may open possibilities for retesting higher price areas. This will include the July 4 high of 1.3681 and the ability to move as high as 1.3788 from July 1.
If the bearish sagdown kicks in again, first support will probably come at 1.3300, a vocal point of anti-Brexit proclivity. If this breaks, traders will next be looking at the August 4 low of 1.3254 as additional support. If GBP/USD breaks through this level, things might get even worse. We look for additional retesting at the August low of 1.3142 and the important 200-day SMA located at 1.3127.
With these caveats notwithstanding, analysts have their eyes peeled for any signs of rebound. The market will continue to look at longer-term technical indicators. In addition, it will assess macroeconomic conditions that affect trader market sentiment and demand for the currencies.