Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.2825.
- Add a stop-loss at 1.2700.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 1.2650 and a take-profit at 1.2600.
- Add a stop-loss at 1.2850.
The GBP/USD exchange rate continued its bull run this week as the market changed its estimates on the next Bank of England (BoE) rate cuts. The pair soared to a high of 1.2770, its highest swing since March 21st.
BoE rate cuts expectations
The GBP/USD pair has been in a strong uptrend in the past few days after the UK published stronger-than-expected consumer inflation data. According to the Office of National Statistics (ONS), the headline CPI softened to 2.4% while the core CPI slowed to 3.9%.
While inflation has dropped sharply in the past few months, it remains significantly above the Bank of England’s target of 2.0%. Still, analysts believe that the headline Consumer Price Index (CPI) will drop below 2% in the coming months as energy prices drop. A report released early Tuesday showed that shop prices continued falling this month.
Therefore, analysts have scaled back their Bank of England interest rate cut bets. Most of them now believe that the bank will not slash rates in July as they were expecting before the UK published strong inflation numbers.
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The next important GBP/USD news today will be statements by Michele Bowman and Loretta Mester. These Fed officials will provide more information about the state of the US economy and interest rates.
The key economic numbers to watch will be the US housing price index (HPI) and the US consumer confidence report. Economists expect the data to reveal that the country’s consumer confidence dropped from 97 to 96.1 in May.
Consumer confidence is one of the most important economic numbers in the US because their spending is the biggest part of the American economy. If the figure shows that confidence continued falling, it will be a signal that the Fed may start cutting rates sooner.
GBP/USD technical analysis
The GBP/USD exchange rate has been in a strong bull run in the past few weeks. As it rose, the pair formed an inverse head and shoulders pattern, a popular bullish sign. It has recently moved above the crucial resistance at 1.2700, the neckline of this pattern.
The pair has remained above the 50-period and 25-period Exponential Moving Averages (EMA) indicators. Also, the Relative Strength Index (RSI) and the Stochastic Oscillator have continued rising.
Therefore, the pair will likely continue its bullish trend now that it has flipped the crucial resistance at 1.2760 into a support level. If this happens, the next point to watch will be at 1.2850.
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