Bearish View
- Sell the GBP/USD pair and set a take-profit at 1.2500.
- Add a stop-loss at 1.2750.
- Timeline: 1-2 days
Bullish View
- Set a buy-stop at 1.2680 and a take-profit at 1.2750.
- Add a stop-loss at 1.2600.
The GBP/USD exchange was largely unmoved and hovering near its lowest level since July 3rd, down by 5.7% from its highest level this year. Its price action happened ahead of the upcoming UK economic data.
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UK Inflation Data Ahead
The GBP/USD pair has been in a steep sell-off, helped by the strong US dollar, which has jumped to its highest level in months. This trend accelerated as investors moved to safe havens after Donald Trump won the last general election.
Trump is seen as a significantly different president compared to Joe Biden. For one, some of his policies are widely seen as being more inflationary. For example, he has pledged to deport millions of immigrants, which will lead to labor shortages and higher prices.
Trump has also pledged to implement tariffs on most imports in a bid to promote local manufacturing, a situation many analysts believe will be unachievable. As a result the US dollar has strengthened as investors embraced a risk-off sentiment following his election.
The GBP/USD pair will react to the upcoming UK inflation data scheduled on Wednesday. Economists expect the data to show that the headline Consumer Price Index (CPI) rose from 1.7% in September to 2.2% in October.
Core inflation, which excludes the volatile food and energy products, is expected to have slowed from 3.2% to 3.1%. If these numbers are accurate, they will point to a more hawkish Bank of England (BoE).
In recent statements, Andrew Bailey has warned that inflation was a major source of concern and hinted that interest rate cuts will not be as quick as expected.
GBP/USD Technical Analysis
The daily chart shows that the GBP/USD exchange rate has been in a strong bearish trend in the past few days. It has dropped below the 50-day and 200-day Exponential Moving Averages (EMA).
The pair has moved below the lower side of the ascending wedge pattern, a popular reversal sign. Also, the Relative Strength Index have also continued its downtrend in the past few weeks.
The GBP/USD pair has moved below the key support at 1.2678, its lowest point on August 7. Therefore, the downtrend will likely continue as sellers target the key support at 1.2500. On the flip side, a move above the key resistance level at 1.2800 will invalidate the bearish view.
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