Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2000.
- Add a stop-loss at 1.2325.
- Timeline: 1-3 days.
Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.2315.
- Add a stop-loss at 1.2096.
The GBP/USD exchange rate wavered after the relatively encouraging inflation numbers from the UK and the United States on Wednesday. The pair rose to a high of 1.2300, much higher than this month’s low of 1.2097.
UK and US inflation numbers
The GBP/USD pair remained on edge after reports from the UK and the US showed that inflation was easing. In the UK, the headline Consumer Price Index (CPI) moved from 2.6% in November to 2.5% in December, lower than the expected 2.6%.
The core CPI also moved downwards, falling from 3.5% in November to 3.2% in December. That report was lower than the median estimate of 3.4%. Therefore, these numbers mean that the Bank of England (BoE) may decide to be more aggressive when cutting interest rates this year.
The BoE has embraced a more gradual tone when cutting interest rates. It slashed rates by just 0.50% last year, bringing the official cash rate to 4.75%, higher than the Fed’s 4.50%. More cuts will be necessary since the British economy is struggling.
The next key data to watch will be the upcoming UK GDP data, which will come out on Thursday morning. Analysts expect the report to show that the economy expanded by 1.3% in November.
The GBP/USD pair also wavered after the US released the December inflation report. The headline Consumer Price Index rose from 2.7% in November to 2.9% in December, while the core CPI softened from 3.3% to 3.2%. It improved from 0.3% to 0.2% on an annualized basis.
While the decline was welcome, the Fed will likely maintain its hawkish tone since inflation remains above the 2% target rate.
GBP/USD technical analysis
The GBP/USD pair has been in a strong sell-off in the past few weeks, moving from a high of 1.3433 in September to a low of 1.2097 earlier this week. It then bounced back after the latest UK and US inflation numbers, reaching a high of 1.2300, its lowest swing on April 22. Retesting that level was a sign of a break and retest pattern, a popular continuation sign.
The GBP/USD pair is also forming a bearish pennant pattern, which is a temporary consolidation after a strong downward move. Therefore, the pair will likely continue falling as sellers target the key support at 1.2000. This view will become valid when it drops below the support at 1.2097.
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