Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.2575.
- Add a stop-loss at 1.2485.
- Timeline: 1-2 days.
Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2485.
- Add a stop-loss at 1.2570.
The GBP/USD pair remained sluggish after last Thursday’s Bank of England (BoE) interest rate decision and the strong UK GDP report. It was trading at 1.2525 on Monday morning as traders refocused on the upcoming US inflation and retail earnings.
US inflation and retail earnings
The GBP/USD pair was in the spotlight last week as the BoE published its interest rate decision. As expected, the bank left interest rates unchanged at 5.25%, the highest point in 16 years. The only change was that two officials voted to cut rates by 0.25%.
Most economists expect that the BoE will deliver a 25 basis point cut in its June 20th meeting. If this happens, it will be the second central bank to cut rates after Sweden’s Riksbank, the oldest central bank in the world.
The pair also reacted to the strong UK GDP report. Data from the Office of National Statistics (ONS) revealed that the economy emerged from a recession in the first quarter. It expanded by 0.6% on a QoQ basis after contracting by 0.3% in the previous quarter.
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It expanded by 0.7% from the same quarter in 2023, helped by robust consumer spending. Additional data revealed that manufacturing and industrial production rose by 2.3% and 0.5%, respectively.
The other important sterling news came from the CFTC, which published the CoT report on Friday. Its report showed that the bearish bets on the sterling dropped to 21.8k last week from the previous 29k.
The next crucial GBP/USD news will come from the United States, where the Bureau of Labor Statistics (BLS) will release the latest US inflation numbers on Wednesday. The consensus estimate is that the core CPI dropped to 3.6% from the previous 3.8%.
Economists at Morgan Stanley expect that US inflation will start falling soon, helped by a decline in housing and insurance prices.
The pair will also react to quarterly earnings by companies like Walmart, Home Depot, and Target. These retailers will provide more information about consumer spending in the country.
GBP/USD technical analysis
The GBP/USD was in a tight range on Monday morning as traders waited for the upcoming US inflation data. It was trading at 1.2525, a notable level since it is along the 38.2% Fibonacci Retracement point. It is also consolidating at the 25-period and 50-period Exponential Moving Averages (EMA).
Most importantly, it has formed a head and shoulders pattern, a popular bearish sign. It is now forming the right shoulder, which could see it rise to 1.2573. If this happens, the pair will likely resume the bearish trend as traders bet on a Fed and BoE divergence.
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