Fundamental analysis of GBP/USD

GBP/USD is in correction after falling to a weekly low and is trading at $1.28750. 

 The decline in the UK services activity may signal market weakness and lower prices, which will prompt the Bank of England to consider policy easing. At the same time, a rise in a similar indicator in the U.S. may signal an improvement in the labor market and the need for higher inflation, which will force the Federal Reserve to raise interest rates to balance demand and reduce financing.

Last Friday, the U.K. Office for National Statistics reported that June's monthly retail sales data rose, while the annual retail sales data came in below expectations. On the other hand, the monthly consumer price index rose 0.1%, exceeding expectations of a 0.4% rise. Uncertainty is also expected over the Bank of England (BoE) interest rate hike on August 3.Weak economic data led some investors to favor a 25 basis points (bps) rate hike, while others expected Bank of England Governor Andrew Bailey to raise rates by 50 basis points.

In the US, initial better-than-expected jobless claims fell to their lowest level since mid-May, fueling speculation of imminent Fed policy tightening despite a lack of clear US sales data. As expectations grew that the Fed would raise rates by 25 basis points at its next meeting, the probability of another rate hike rose to 28%. Investors are eagerly awaiting the release of the UK manufacturing and services purchasing managers' indices and the Federal Open Market Committee meeting on Wednesday.

Any negative Fed decision could put pressure on GBP/USD ahead of the Bank of England meeting scheduled for August 3. Today's focus is on the private sector PMI for July, which is expected to show a 53 decline in the services sector.

Technical analysis and scenarios:

The current price of GBP/USD is around 1.28750. The pair is near the lower Bollinger Bands at 1.28040, indicating a potential oversold condition. The Stochastic oscillator value at 72.5286 confirms this, hinting at a possible trend reversal. However, the negative MACD values emphasize the overall bearish market sentiment.

Main scenario (BUY)

Recommended entry level: 1.29690.

Take Profit: 1.30440.

Stop Loss: 1.29000.

Alternative scenario (SELL)

Recommended entry level: 1.28350.

Take Profit: 1.27450.

Stop loss: 1.28800.