Since June 7, the British pound has been trading below a downtrend channel formed on the 4-hour chart.
In the European session yesterday, the British pound reached the area of 1.2325 which coincides with the top of the downtrend channel.
As it was unable to break the strong resistance of the downtrend channel, it fell and is currently trading below the 21 SMA located at 1.2264.
The short-term outlook could be negative for the British pound if it trades below the level of 1.2300.
Below this area, there is strong bearish pressure. As it is now trading below the 21 SMA, it is likely that the technical correction could continue and the pair could reach the area 2/8 Murray at 1.2207 and could drop to 61.8% Fibonacci around 1.2105.
On the upside, we should expect a sharp break above the downtrend channel and a daily close above 1.2300 for the pound to resume its uptrend. Should this happen, GBP/USD could reach the 200 EMA located at 1.2451 and go as high as 4/8 Murray at 1.2695.
On Monday, Catherine Mann of the BoE said that a 0.50% interest rate hike would reduce the risk of inflation being driven by a drop in the GBP/USD pair.
This increase in the interest rate is expected to take place in the month of August 2022. Meanwhile, we expect the British pound to remain under pressure below the 200 EMA located at 1.2451.
The market sentiment report shows that there are 71% of traders who are buying the GBP/USD pair.
The outlook is likely to remain negative for the British pound. Given that there are a lot of buyers and only 29% are selling, GBP/USD is likely to continue falling towards the 1.21 area and could even reach the psychological 1.20 level.