Bearish outlook
- Sell the GBP/USD pair and set a take-profit at 1.3300.
- Add a stop-loss at 1.3500.
- Timeline: 1-2 days.
Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.3500.
- Add a stop-loss at 1.3300.
The GBP/USD exchange rate pulled back to its lowest point in months, even after the UK published high inflation data. It retreated to a low of 1.3368, its lowest point since May 21st, down sharply from the year-to-date high of 1.3783.
Sterling Drops Despite UK Inflation Data
The GBP/USD exchange rate continued its recent decline even after the UK released strong inflation numbers last week.
In a statement, the Office of National Statistics (ONS) said that the headline consumer price index (CPI) rose by 3.6% in June, higher than the median estimate of 3.4%.
It has reached its highest point in 18 months and experienced the steepest increase in months. This jump was primarily due to the soaring prices of food and motor oil.
The soaring inflation means that the Bank of England (BoE) will likely be cautious when making its interest rate decision. It may decide to hold rates steady in its August meeting and then resume its cuts later this year.
The GBP/USD pair has pulled back as investors started to book profits and as the US Dollar Index (DXY) surged. It jumped after the US released strong economic numbers.
Data released last week showed that the country’s retail sales jumped sharply in June. More data showed that the unemployment rate improved to 4.1%, while the country’s inflation jumped to 2.7%.
The next key catalysts for the GBP/USD exchange rate will be the upcoming statement by Jerome Powell, the Federal Reserve Chair, on Tuesday. He will likely reiterate his view that the bank should be more cautious when making its interest rate cut.
His statement will come on the same day that Michele Bowman will also speak. Like Christopher Waller, Bowman has argued that the bank should cut rates by 0.25% in July.
GBP/USD Technical Analysis
The daily chart shows that the GBP/USD exchange rate has remained under pressure in the past few weeks as the US dollar continued. It has dropped below the lower side of the ascending channel.
The pair also moved below the 50-day moving average, a sign that bears are in control. Top oscillators, like the MACD and the Relative Strength Index (RSI) have all pointed downwards.
On the positive side, the pair has formed a double-bottom pattern at 1.3371, and a neckline at the year-to-date high of 1.3783. Therefore, a move below the support at 1.3371 will point to more downside as it will invalidate the double-bottom pattern.
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Crispus Nyaga is a financial analyst, coach, and trader with more than 8 years in the industry. He has worked for leading companies like ATFX, easyMarkets, and OctaFx. Further, he has published widely in platforms like SeekingAlpha, Investing Cube, Capital.com, and Invezz. In his free time, he likes watching golf and spending time with his wife and child.