Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.2815.
- Add a stop-loss at 1.2730.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 1.2745 and a take-profit at 1.2700.
- Add a stop-loss at 1.2815.
The GBP/USD pair has been in a strong uptrend in the past few weeks as the market participants shifted their views on when the Bank of England (BoE) will start cutting interest rates. It soared to over 1.2800 for the first time since March as the sterling strength gained steam.
Sterling is gaining momentum
The British pound has emerged as one of the best-performing currencies in the developed world. It has jumped to a multi-decade high against the Japanese yen. Also, it is hovering near its highest point this year against the euro and sterling.
This performance is a reflection that most analysts expect the Bank of England (BoE) will maintain a hawkish stance in the next few months. The view is that the bank will not cut interest rates in its June meeting as most analysts were expecting.
This view continued after the UK released stronger-than-expected inflation data last week. While the headline and core Consumer Price Index (CPI) dropped in April, the decline was lower than what most analysts were expecting.
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Further, the bank will likely avoid cutting rates before an election since it will be accused of political interference. As a result, the most recent CoT report by the CFTC showed that most hedge funds and speculators have turned bullish on the currency.
The GBP/USD pair also rallied after several statements by Federal Reserve officials. In statements this week, Loretta Mester and Neel Kashkari , maintained their view that the Fed will need more evidence that inflation was falling. Therefore, there is a likelihood that the Fed will deliver just one rate hike later this year.
The main economic data that came out on Tuesday was the strong US Consumer Price Index (CPI) report. According to the Conference Board, the country’s consumer confidence rose from 97.5 in April to 102 in May.
GBP/USD technical analysis
The GBP/USD exchange rate rose to a multi-month high of 1.2800 on Tuesday and then pulled back to 1.2760. This was an important break and retest chart pattern since the pair moved back to the 78.6% Fibonacci Retracement level.
The pair has remained above the 50-period Exponential Moving Average (EMA) and the Woodie pivot point tool. Also, the pair has jumped above the Ichimoku cloud indicator.
Therefore, by forming a break and retest pattern, it means that the pair will continue rising ahead of the upcoming US GDP and PCE inflation numbers. If this happens, it could move to the second resistance of the Woodie pivot point at 1.2815.
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