Bearish view
- Set a sell-limit at 1.2600 and set a take-profit at 1.2500.
- Add a stop-loss at 1.2700.
- Timeline: 1-3 days.
Bullish view
- Set a buy-stop at 1.2610 and a take-profit at 1.2700.
- Add a stop-loss at 1.2500.
The GBP/USD exchange rate continued rising this week as traders embraced a risk-on sentiment ahead of the Federal Open Market Commission (FOMC) interest rate decision. The pair spiked to a high of 1.2565 on Tuesday, its highest swing on April 10th.
Risk-on sentiment
A risk-on sentiment continued in the market this week even after the initial jitters surrounding the collapse of the Japanese yen. Global stocks jumped, with the Dow Jones and the Nasdaq 100 indices soaring by over 0.35% and the US dollar index (DXY) falling by 30 basis points.
The market is now focusing on the coming Federal Reserve interest rate decision set for Wednesday. Economists expect the Fed to leave interest rates unchanged as it has done in the past few months.
Still, this will be an important meeting because it will set the tone for what to expect in the coming meetings. It will also guide when the bank will start cutting interest rates.
The meeting will come a few days after the US released mixed economic numbers. A Bureau of Economic Analysis (BEA) report showed that the economy was not growing as fast as expected. It grew by just 1.6% in Q1, down from 3.5% in the previous month.
This was the first GDP estimate for the quarter, meaning that the figure could change in the next two reports. In the past, however, the three numbers don’t have a big difference.
Another data showed that inflation is still a big issue in the US. The closely watched PCE data rose to 2.6% in March, higher than the Federal Reserve target of 2.0%.
The key GBP/USD news on Tuesday will be the US consumer confidence data, which is expected to show that confidence slipped to 104 in April. American consumers are concerned about the country’s inflation.
Elsewhere, in the UK, economists are torn between what to expect. While Andrew Bailey, the head of the bank, has signaled that the bank will start cutting soon, the chief economist has warned that they may not happen soon.
GBP/USD technical analysis
The GBP/USD pair has continued rising in the past few weeks. It rallied to a high of 1.2560, its highest swing since April 11th. The pair has moved above the 38.2% Fibonacci Retracement level.
Meanwhile, the Relative Strength Index (RSI) has risen and is nearing the overbought point. It has remained above the 50-period Exponential Moving Averages (EMA). On the other hand, the Average Directional Index (ADX) has continued falling, signaling that it is losing momentum.
Therefore, the pair will rise and retest the 50% retracement level at 1.2600. If this happens, the pair will then retest the support at 1.2500, the upper side of the inverse head and shoulders pattern.
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