Bearish View
- Set a sell-stop at 1.3880 and a take-profit at 1.3785 (last week’s low).
- Add a stop-loss at 1.3960.
- Timeline: 1-2 days.
Bullish View
- Set a buy-stop at 1.3900 and a take-profit at 1.4110 (61.8% retracement).
- Add a stop-loss at 1.3800.
The GBP/USD staged a strong recovery on Monday as Forex traders refocused on the upcoming Bank of England (BoE) interest rate decision. They also started readjusting to Fed’s relatively hawkish policies. It rose to 1.3940, which was relatively higher than Friday’s low of 1.3785.
BoE and Fed
The GBP/USD rose as investors waited for testimony by Jerome Powell, the head of the Fed. He will testify today before the House Sub-Committee of the Coronavirus Crisis. In prepared remarks, he said that the US economy was doing relatively well.
He said that the labor market will keep doing well and that the temporary inflationary pressures will ease. He is also expected to talk more about last week’s decision when the Fed decided to leave interest rates and quantitative easing intact. The FOMC also pointed to possible interest rate hikes in 2023, earlier than the previous guidance of 2024.
In an interview, John Williams, the head of the New York Fed said that the US economy was not ready for the bank to start pulling back its monetary support. He said that the economy was doing better and that the Fed should stick to the terms of its monetary policy framework.
The biggest catalyst for the GBP/USD will be the upcoming BoE interest rate decision. Like the ECB and the Fed, the BoE is expected to leave interest rates unchanged on Thursday. Still, investors will focus on the statement by the bank on when it will start easing its monetary policy. Some analysts expect the bank to signal that it will start winding down its quantitative easing policy later this year. Others expect it to remain muted on when this tightening will happen.
The BoE decision comes at a time when data from the UK has been relatively strong. The unemployment rate has fallen while inflation has risen to the BoE’s target of 2.0%.
GBP/USD Analysis
The GBP/USD dropped sharply last week after the relatively hawkish Fed decision. This saw it drop from last week’s high of 1.4095 to 1.3785. It erased some of these losses on Monday and rose above the 61.8% retracement level at 1.3890. The pair remains below the 25-day and 50-day exponential moving averages (EMA and the Ichimoku cloud. Therefore, there is a possibility that the upward momentum will start fading and that the pair will resume the downward trend.
