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Bearish view
- Set a sell-limit at 1.2311 and a take-profit at 1.2038.
- Add a stop-loss at 1.2410.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.2310 and a take-profit at 1.2400.
- Add a stop-loss at 1.2250.
The GBP/USD exchange rate has bounced back in the past three days as the recent sell-off takes a breather. After falling to a low of 1.2038 on Wednesday, the pair soared to 1.2255 as traders reflected on the strong US jobs number.
US inflation and FOMC minutes ahead
The US dollar index slipped even after the Bureau of Labor Statistics (BLS) published strong jobs data. The report showed that the American economy added over 336k jobs in September, higher than the median estimate of 170k.
The private nonfarm payrolls rose to 263k, higher than ADP’s estimate of 89k. Manufacturing payrolls jumped by 17k in September. At the same time, the unemployment rate rose by 3.8% while the average hourly earnings rose by 4.2%.
These numbers reinforced the relatively hawkish tone by the Federal Reserve. In its meeting in September, the Fed decided to leave interest rates unchanged between 5.25% and 5.50%. The dot plot pointed to another 0.25% rate hike this year/
This view will depend on this week’s US Consumer Price Index (CPI) data scheduled for Thursday. Economists polled by Reuters expect the data to show that the headline CPI rose to 3.6% in September, lower than the previous 3.7%.
The figure could be higher than expected since gasoline prices jumped during the month. They also expect the core CPI to rise by 4.1% after rising by 4.3% in the previous month. A higher increase than expected means that the Fed will likely hike in November.
The other important GBP/USD news will be the upcoming FOMC minutes scheduled for Wednesday. These minutes will provide more hints about the deliberations that happened in September.
The US dollar index will also react to the upcoming US bank earnings. Top banks like Citi, Wells Fargo, and JP Morgan will deliver their results this week.
GBP/USD technical analysis
The GBP/USD exchange rate formed a small doji pattern last week. In price action analysis, this candlestick pattern is one of the most popular bullish signs in the market. The pair has also formed a three white soldiers pattern, which is usually a bullish sign.
It also remains below the 50-day moving average and is between the 38.2% and 23.6% Fibonacci Retracement level. The Relative Strength Index (RSI) has moved above the oversold level.
Therefore, the pair will likely retest the resistance at 1.2311 (May 25th low) and then resume the bearish trend.
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