Bullish View
Buy the GBP/USD and set a take-profit at 1.3557.
Add a stop-loss at 1.3400.
Timeline: 1-2 days.
Bearish View
Sell the GBP/USD pair and set a take-profit at 1.3400.
Add a stop-loss at 1.3500.
The GBP/USD pair pulled back on the back of the overall strong US dollar. The pair declined to a low of 1.3480, which was about 0.90% below the highest level last week.
US Dollar Strength
The GBP/USD pair declined as the US dollar strengthened across the board. The closely-watched dollar index rose by about 0.30% as a US bond sell-off continued. Yields of the five-year and ten-year government bonds all rose. The currency strengthened against all G10 and most emerging market currencies.
There was no major catalyst that pushed the US dollar higher. The most plausible reason was the overall positioning among investors that the Federal Reserve will embrace a more hawkish tone this year.
Economists polled by Reuters expect that the Fed will implement three rate hikes this year and end the asset purchases in March. The Bank of England (BOE) is expected to embrace a similar hawkish tone as it tries to battle the rising consumer inflation. Recent data showed that the consumer price index rose by more than 5%.
Later today, the GBP/USD will be in focus because it will be the first trading day of UK markets of the year. Also, there will be important economic numbers that will have some impact on the economy. For example, Markit will publish the latest manufacturing PMI data. Based on the preliminary report, analysts expect the data to show that the country’s PMI declined to 57.6 in December.
The UK will also publish the latest mortgage lending and approvals data. Economists expect the data to show that mortgage approvals declined to 65.4k in November while the total mortgage lending rose to 3.55 billion pounds. These numbers are important barometers for the UK’s housing sector.
GBP/USD Forecast
The four-hour chart shows that the GBP/USD pair rose to a high of 1.3551 last week. This was the highest level since November last year. It also moved above the 25-day and 50-day moving averages. Even after the overnight drop, the pair is still slightly above the two averages. The same is even true on the daily chart.
It is also slightly below the 50% Fibonacci retracement level while the Relative Strength Index (RSI) has tilted lower.
Therefore, the pair will likely resume the bullish trend later today as bulls target the 61.8% retracement level at 1.3577.
