Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2580.
- Add a stop-loss at 1.2700.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.2620 and a take-profit at 1.2700.
- Add a stop-loss at 1.2580.
The GBP/USD exchange rate continued retreating amid signs of divergence between the Federal Reserve and the Bank of England (BoE). The pair dropped to a low of 1.2620, its lowest swing since May 15th.
UK GDP and US data ahead
The main reason why the GBP/USD pair has crashed is that there are rising odds that the Fed and the BoE will diverge on interest rates.
In its last interest rate decision, the BoE pointed to a rate cut since inflation in the country has continued to drop in the past few months. It dropped to its target rate of 2.0% in May and there are chances that it will continue falling.
The next important data to watch will be the upcoming UK GDP data set for Friday. Economists expect the report to show that the economy expanded by 0.6% on a QoQ basis in Q1 and 0.2% on a YoY basis. The British economy has held stronger than expected, helped by higher consumer spending.
The GBP/USD pair will react mildly to the upcoming US GDP data. While these numbers are important, their impact on the greenback will be limited because the third estimate tends to be in line with the previous three.
The main data to watch will be the Personal Consumption Expenditure (PCE) data scheduled for Friday. This is an important inflation report that looks at changes in prices of products and services in rural and urban areas, making it the Fed’s favorite inflation gauge.
Economists expect the data to show that the headline PCE slowed from 2.7% to 2.6% while the core PCE moved from 2.8% to 2.6%. If these numbers are accurate, they will mean that inflation is not falling to the 2% target as fast enough.
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GBP/USD Technical Analysis
The GBP/USD exchange rate has been in a strong downward trend in the past few weeks after peaking at 1.2860 in June. It has dropped below the key support at 1.2622, its lowest swing on June 21st.
The pair has moved below the 23.6% Fibonacci Retracement point. It has also crashed below the 25-period and 50-period moving avrerages. The MACD and the Awesome Oscillator have remained below the neutral point. It has also formed a head and shoulders pattern.
Therefore, the pair will likely continue falling as sellers target the 50% retracement point at 1.2580.
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