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Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2200.
- Add a stop-loss at 1.2425.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.2395 and a take-profit at 1.2455.
- Add a stop-loss at 1.2300.
The GBP/USD was flat on Tuesday morning as the market prepared for more volume after Monday’s UK and US public holidays. The pair was trading at 1.2360, lower than this year’s high of 1.2674 while UK gilts jumped to the mini-budget highs.
UK gilt sell-off continues
The GBP/USD pair has come under pressure amid woes in the British bond market. The yield of gilts is approaching the highest level since the mini-budget era in 2022. According to Investing, the yield of the 10-year government bonds jumped to 4.37% while the 2-year rose to 4.54%.
Bond yields have jumped after the relatively strong consumer inflation data. While the headline CPI figure dropped below 10% in April, the 8.7% rise was higher than expected. Core inflation, which excludes the volatile food and energy prices, rose at a faster pace than predicted. Therefore, there is a likelihood that the Bank of England will continue tightening even as economic growth slows.
The GBP/USD price is also reacting to the agreement between Democrats and Republicans. The deal, if passed, will see the American government avoid a default. While a deal is not yet certain to pass Congress, analysts believe that it will get bipartisan votes.
There will be two important economic data on Tuesday. Conference Board will publish the latest consumer confidence data. Economists expect that consumer confidence dropped from 101.3 in April to 99.7 in May.
The US will also publish the latest housing numbers. Economists believe that the house price index rose y 2.4% in March after rising by 4.0% in February. Despite the rising interest rates, house prices have held steady because of lower inventories.
GBP/USD technical analysis
The GBP/USD pair’s recent decline paused at an important support level. It was trading at 1.2345, the lowest point on April 10 and 17. The pair has retreated below the 25-period and 50-period exponential moving averages. At the same time, the Average Directional Index (ADX) has dropped 14.61, the lowest point since May 3rd. The ADX is commonly used to measure the strength of a trend.
The MACD has moved below the neutral point. Therefore, the pair will likely have a bearish breakout as sellers target the important support level at 1.2200, the lowest point on March 24th.
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