Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2850.
- Add a stop-loss at 1.3010.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.2920 and a take-profit at 1.3000.
- Add a stop-loss at 1.2850.
The GBP/USD exchange rate retreated for two straight days as the recent bull run reached its exhaustion levels. After peaking at 1.3045 on Wednesday, the pair was approaching the psychological level of 1.2900 on Monday morning.
Mixed picture from the UK
The GBP/USD pair dropped after a series of important economic numbers from the UK. A report published on Wednesday showed that the country’s inflation retreated from 0.3% in May to 0.1% in June. It remained at the Bank of England’s target of 2.0% while the core CPI remained at 3.5%.
Another report released on Friday revealed that the country’s retail sales tumbled in June. They dropped by 0.2% on a MoM basis, missing the expected growth of 0.2%. Sales dropped by 1.2% in June from the previous month.
Similarly, core retail sales, which excludes the volatile food and energy prices, dropped by 0.8% YoY and 1.5% MoM. These numbers mean that the UK economy is slowing, a move that could incentivise the BoE to start cutting interest rates as soon as on August 1st.
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There will be no important UK economic data this week, other than the flash manufacturing and services PMIs. Instead, traders will focus on the upcoming US PCE data scheduled for Friday this week.
This will be a crucial report because the PCE is the Fed’s favorite inflation gauge since it captures price movements in rural and urban areas.
Weak PMI data will raise the possibility that the Fed will start to cut interest rates as soon as in September. In a recent statement, Jerome Powell and other officials have hinted that the bank will start cutting rates even before inflation drops to the bank’s target of 2.0%. The Fed is now more concerned about the softening labor market instead of inflation.
GBP/USD technical analysis
The GBP/USD pair suffered a harsh reversal on Thursday after forming a shooting star pattern on Wednesday. It has dropped and is nearing the key support level at 1.2895, its highest swing on March 8th.
The pair has also dropped slightly below the neutral line of the pitchfork tool and it remains above the 50-day moving average. Meanwhile, the Relative Strength Index (RSI) has dropped below the overbought point of 70 while the MACD has remained above the neutral point.
Therefore, the pair will likely drop a bit and then resume the bullish trend this week. The key support and resistance points to watch will be at 1.2850 and 1.3000.
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