Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2070.
- Add a stop-loss at 1.2270.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.2250 and a take-profit at 1.2350.
- Add a stop-loss at 1.2150.
The GBP/USD price dropped slightly as an eventful quarter comes to a close and as UK’s inflation expectations dropped. The pair dropped to the psychological level of 1.2200, the lowest price since Tuesday last week.
US consumer confidence ahead
The GBP/USD pair rose to a multi-month high last week after the UK published strong consumer inflation data. These numbers showed that the headline consumer inflation resumed its upward trend in February as it rose to 10.4% after falling for three straight months. The closely-watched core inflation also continued rising.
As a result, the Bank of England (BoE) continued with its rate hikes. The committee voted by 7-2 to increase interest rates by 0.25% to 4.25%. It also hinted that it will deliver more hikes even as the banking sector remains under pressure. Analysts are penciling at least two more hikes this year.
The other important data that came out last week was the latest UK retail sales numbers. The numbers showed that retail sales jumped in February as consumer confidence rose. According to the Office of National Statistics (ONS), sales jumped by 1.25 on a month-on-month basis, higher than the analysts forecasts of 0.5%.
UK consumer confidence also rose as inflation expectations dived. Data by Gfk showed that its consumer confidence index rose to -36, the highest level since March last year. UK’s consumer confidence is an important figure because of the crucial role of consumer spending plays in the economy. Therefore, these numbers could push the BoE to intensify its hikes.
The economic calendar will be relatively muted on Monday, with no important data scheduled from the UK and the US. Therefore, as we have seen recently, investors will focus on the happenings in the banking sector.
GBP/USD forecast
The GBP/USD pair made a bearish breakout on Friday even after the strong UK retail sales numbers. This decline came at a time when the pair was forming a rising wedge pattern. In price action analysis, this is one of the most accurate bearish patterns. As the pair dropped, it found support at the 23.6% Fibonacci Retracement level. It also moved slightly below the 25-day and 50-day moving averages.
Therefore, because of the rising wedge pattern, the pair will likely have a bearish breakout, with the next target being the 50% retracement level at 1.2070.
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