Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2565.
- Add a stop-loss at 1.2830.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.2715 and a take-profit at 1.2800.
- Add a stop-loss at 1.2600.
The GBP/USD pair was flat on Tuesday morning as focus remained on the UK political scene and the next Fed actions. It also stabilized ahead of the upcoming UK inflation data and the Bank of England (BoE) interest rate decision. It was trading at 1.2705, a few pips above last week’s low of 1.2665.
US retail sales and UK inflation data
The GBP/USD pair rose slightly after the Labour Party continued to share its priorities when it wins the upcoming election. In a statement, Rachel Reeves, the Shadow chancellor, said that her party would seek to improve relations with the European Union.
The statement signalled that the party wants to go further than previously thought to improve the UK-EU trade terms. This is widely seen as a positive thing for the UK, where small companies have faced barriers when doing trade with the European Union after Brexit.
The next important GBP/USD news will come from the United States where the statistics agency will publish the latest retail sales, manufacturing, and industrial production data.
Economists expect these numbers to show that the economy did well in May, with retail sales rising by 0.3%. These data will come a week after the US released encouraging consumer price index (CPI) data. The headline and core inflation numbers retreated slightly in May.
They will also come after the Fed published a hawkish interest rate statement in which it left interest rates unchanged and hinted that it will deliver one cut this year. Patrick Harker of Philadelphia Fed reiterated this view in a statement on Monday.
The main drivers for the GBP/USD pair will be Wednesday’s UK inflation data and Thursday’s Bank of England decision. Most economists believe that the bank will leave interest rates unchanged and point to one or two cuts this year. If these cuts happen, they will come after the July election.
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GBP/USD Technical Analysis
The GBP/USD pair crashed hard after last week’s Fed decision. It retreated to a low of 1.2705, which was along the Woodie pivot point and the 50-day Exponential Moving Average (EMA).
The Relative Strength Index (RSI) has moved slightly below the neutral point at 50. Most importantly, it is in the process of forming an inverse head and shoulders pattern whose rigjht shoulder is at 1.2565, the first support of the Woodie pivot point.
Therefore, while the pair has stabilised a bit, there is a possibility that it will continue falling before or after the UK inflation data and BoE decision.
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