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Hello, dear traders!
March 23rd was a rather eventful day for GBP/USD. Jerome Powell testified in Congress yesterday. In addition, the United Kingdom delivered its labor market report. The unemployment rate in the country dropped to 5%. It is a very positive factor amid the COVID-19 pandemic. Meanwhile, the claimant count increased to 86,600. The data came mixed due to the two key reasons. Firstly, it is the coronavirus pandemic that triggered the implementation of tough restrictions and lockdowns in the UK, which had an adverse impact on the country's economy. Lastly, it is the withdrawal of the UK from the EU that resulted in a new trading agreement between the parties.
Today, the UK released its CPI statistics. The reading turned out to be worse than expected. It increased only by 0.1% m/m. Economists had expected the index to grow by 0.5%. The annual inflation rate in the United Kingdom eased to 0.4% compared to market forecasts of 0.8%. This important data reflects inflationary pressures and can be regarded as a negative factor for the pound. It will become clear when we switch to analyzing trading charts. Today, among other crucial reports in the US are durable goods orders and manufacturing and services PMIs. Apart from that it is the second day of Powell's testimony in Congress.
Daily chart
During yesterday's trading session, GBP/USD fell sharply and broke two important and strong support levels of 1.3806 and 1.3777. At the time of writing, pressure on the pound is still increasing. Right now, the pair is trying to break through 1.3700. If the price closes below this mark, the pair is likely to go down further. The closest targets are seen at 1.3660, 1.3630, and 1.3600. At the time of writing, GBP/USD is within the Ichimoku cloud.
H1 chart
According to the H1 chart, there is a strong downward trend in the market, which can hardly be called anything other than a trend reversal. At the moment, bulls and bears are fighting over the level of 1.3700, which shows its importance for market participants. Given that the pair is presumably under bears' control, you should open short positions. However, it is not safe to open them right now. Firstly, after such a sharp drop in price, it would be great to see a correction. Only then, you could sell the pair. Lastly, it is risky to open short positions on a breakout at 1.3700 since the price may rebound from this level. Therefore, I believe the best time to sell the instrument will be after a correction to 1.3750. Alternatively, if the pair consolidates below 1.3700 with three candlesticks in a row, you should sell GBP/USD on a pullback to the 1.3700-1.3720 price range.
Have a nice trading day!
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