Early in the American session, the British pound (GBP/USD) is trading at around the 200 EMA and around the 21 SMA. Since July 27, we can see a slightly bearish channel. If GBP/USD fails to break this channel in the next few hours, the pair could resume the bearish sequence.
The outlook for the British pound could be clouded due to the Bank of England warning that the UK economy could slip into a prolonged recession starting from the fourth quarter. Additionally, the BoE pointed out that monetary policy is not pre-established. This, in turn, suggests that the BoE is more likely to slow down its tightening cycle and GBP/USD could suffer losses as a result.
Fundamental data could shake the strength of the British pound. This will give us an opportunity to continue selling in the short term. The key for the pound is to consolidate and trade below 5/8 Murray at 1.2329.
The bearish pressure could intensify if the pound trades below the 200 EMA and 21 SMA, giving it a negative outlook. We will have opportunities to continue selling with targets at 1.1962 (2/8 Murray) and 1.1780.
Conversely, a sharp break of the downtrend channel and a daily close above 1.2150 could be a positive sign but the pair could be capped by strong resistance at 4/8 Murray at 1.2207. The breakout of 1.2207 (4/8 Murray) and consolidation above this level could be a key factor for the pound to resume its bullish cycle and it could reach 1.2329 (5/8 Murray) and even 6/8 Murray at 1.2451.
Since August 1, the eagle indicator is in an overbought phase. Therefore, the signal remains negative and any technical bounce is likely to be seen as an opportunity to sell on the condition that the pound trades below the level of 1.2207.
Our trading plan for the next few hours is to sell below 1.2120 (200 EMA) or wait for a pullback to the top of the downtrend channel at around 1.2141 with targets at 1.2050 1.2015, and 1.1962 (2/8).
