Early in the American session, the British pound (GBP/USD) is trading below the pivot point of 4/8 Murray and below the 21 SMA located at 1.2198. This area has become a strong top for the pound. As long as it trades below this level, it is expected to continue its bearish move and could reach the key support area of 1.2121 (200 EMA).
Risk appetite is dominating the market and is putting downward pressure on the US dollar, which has allowed the GBP/USD pair to recover from the 1.1780 zone. This positive sentiment is evident in the stock markets that maintain a strong upward trend.
However, the pound could find it difficult to sustain the uptrend as investors await the announcement from the Bank of England. This monetary policy decision is scheduled for tomorrow, August 4, and the BoE is expected to raise interest rates by 50 basis points, the largest increase since 1995.
The markets seem to have priced in this rate hike, so the pound could react against the trend and fall to the psychological level of 1.20. Therefore, the focus will be on the forward guidance for monetary policy, which will weigh on the British pound.
Another factor that will influence the trend of the GBP/USD pair and that could give it strong volatility is the US payroll data. It is expected that before this event the pound could consolidate at around 1.23 - 1.20. A sharp break above or below these levels will define the short-term trend.
Therefore, any further decline below the 200 EMA could change the trend of the GBP/USD pair and it could fall towards 2/8 Murray located at 1.1962. It is likely to stop at around this level because the 61.8% Fibonacci level matches this zone, which could give GBP an opportunity for a strong technical bounce.
In case the pound falls below 2/8 Murray, it could resume the downtrend and GBP/USD could reach the low of 1.1780 and could even drop to the psychological level of 1.1500.
On the other hand, a return and consolidation above 4/8 Murray at around 1.2207 could mean strength for the pound and it could continue its rise to 6/8 Murray at 1.2451.
Our trading plan for the next few hours is to sell below 1.2207 or the current price level of 1.2170 with targets at 1.2121 (200 EMA), 1.2085 (3/8), and 1.1962 (2/8). The eagle indicator is giving an overbought signal which supports our bearish strategy.
