Further drop points towards 1.2650

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  • GBP/USD remains vulnerable despite being oversold on the daily chart.
  • Risk aversion, the contrast between the Fed and the BoE and the weak data from the UK keep the pressure on the British pound.
  • The breakout of the descending triangle opens the doors towards the pattern target of 1.2650.

GBP/USD is on a downward spiral towards the 1.2700 level as the bears remain relentless after Friday’s 200 pip sell-off from the 1.3035 region.

Expectations of an aggressive Fed tightening, China’s covid lockdowns and a likely EU embargo on Russian oil imports are weighing on investor sentiment on Monday as the safe-haven US dollar extends its rally. . Dollar strength combined with risk aversion weighs on the high beta British pound.

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Meanwhile, the monetary policy divergence between the Fed and the BoE widened further after UK Retail Sales and the S&P Global Preliminary Services PMI disappointed in the reported month. The contrast of the central banks will continue to weigh on the pound sterling.

On the daily chart, GBP/USD’s sell-off produced a downward breakout of a descending triangle after the pair closed below triangle support at 1.2975 on Friday.

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In light of the triangle breakout, GBP/USD remains on track to test the pattern target at 1.2650 as the 1.2700 level looks at risk at time of writing.

The 14-day RSI has entered the oversold region, which suggests that a pullback to the upside in the near term cannot be ruled out.

As sellers hold firm, bearish exhaustion looks elusive. If the pair tries to rebound, retaking the 1.2800 barrier will be critical.

Higher up, the daily highs of 1.2842 could be tested.

GBP/USD daily chart

GBP/USD additional technical levels

Source: Fx Street

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