A Series of Bearish Patterns Form

The British pound has been in a slow bullish trend since January 6 when it tumbled to 1.1850.

Bearish view

Sell the GBP/USD pair and add a take-profit at 1.2200.
Set a stop-loss at 1.2450.
Timeline: 1-2 days.

Bullish view

Set a buy-stop at 1.2385 and a take-profit at 1.2500.
Add a stop-loss at 1.2280.

The GBP/USD price drifted lower as technical chart patterns pointed to more weakness. It pulled back to 1.2260 after it rose to a monthly high of 1.2452 on Monday. Chart patterns point to more downside ahead of the upcoming US GDP and inflation figures.

The British pound retreated after the S&P published weak manufacturing and services PMI numbers. In the UK, flash services PMI declined from 49.9 in December to 48 in January. That decline was worse than the median estimate of 49.6. The manufacturing PMI rose slightly to 46.7 but remained below the expansion area of 50.

Additional data from the UK revealed that public sector net borrowing soared from 18.82 billion pounds to 26.58 billion pounds in December. This increase was attributed to more government spending coupled with high-interest rates. Borrowing surged to the highest point in 30 years.

Meanwhile, in the United States, the manufacturing PMI rose slightly to 46.8 while the services PMI improved to 46.6. The two were slightly higher than what most analysts were expecting. With no data from the US on Wednesday and Thursday, the pair will next react to the latest US GDP numbers.

GBP/USD forecast

The British pound has been in a slow bullish trend since January 6 when it tumbled to 1.1850. Since then, the GBP/USD pair managed to cross the crucial resistance point at 1.2135 (December 28 high). After that, it continued rising until it hit the key level at 1.2445. This was a notable price because it coincided with the highest point on December 15. This means that the pair has formed a double-top pattern, which is one of the most popular reversal patterns.

Sterling also formed a rising wedge pattern that is shown in pink. Most recently, it has formed a small head and shoulders pattern, which is usually a sign of a reversal. The Awesome Oscillator moved below the neutral point. Therefore, the outlook of the GBP/USD price is extremely bearish at this point. The next logical target will be the psychological point at 1.2200 followed by the key level at 1.2135.

On the flip side, a rebound above the double-top pattern at 1.2445 will signal that there are still some buyers left there. If there is enough volume, it will push it to about 1.2500.