Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.2700.
- Set a take-profit at 1.2485.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 1.2562 and a take-profit at 1.2485.
- Add a stop-loss at 1.2650.
The GBP/USD exchange rate bounced back on Tuesday after the US published strong jobs numbers and after the BoE governor pointed to higher interest rates. The pair also jumped after the US published encouraging consumer inflation data. It was trading at 1.2622 on Wednesday, higher than this week’s low of 1.2488.
UK hot labor market
The UK labor market is doing well as evidenced by the latest jobs numbers. On Tuesday, the Office of National Statistics (ONS) said that the economy added over 250k jobs in the three months to April, a higher figure than the median estimate of 150k. The unemployment rate dropped to 3.8% while the average earnings excluding bonuses jumped by 7.2%.
In a statement after the report, Bank of England’s Andrew Bailey said that the bank was facing more pressure to fight inflation. He cited the strong labor market, especially the strong wage growth, as a key factor for the uptick in prices.
Therefore, there is a likelihood that the BoE will continue hiking interest rates for a longer period than expected. For example, UK’s gilt yields continued rising, reaching the highest level since the “mini” budget fiasco a few months ago. This is a sign that the market expects that the BoE will hike at a faster pace going forward.
The GBP/USD pair also jumped as traders anticipated that the BoE and the Federal Reserve will diverge going forward. This is after the US published encouraging data ahead of the latest Fed decision. The data revealed that the headline consumer inflation dropped to 4.0% in May.
Therefore, analysts believe that the Fed will pause its interest rate hikes on Wednesday. It will use this pause to assess the impact of past rate hikes to the economy.
GBP/USD technical analysis
The GBP/USD pair has found a lot of support at the lower side of the Andrews Pitchfork tool. This support also coincides with the lowest levels since May 25th. The pair has also managed to flip the important resistance level at 1.2538 ((June 2nd high) into resistance.
On the 4H chart, the pair is trading at the first support of the Andrews Pitchfork. It is also being supported by the 25-period and 50-period exponential moving averages. Therefore, the outlook of the pair is bullish, with the initial target being at 1.2677 (May 10th high) followed by the psychologically-important point at 1.2700.
Ready to trade our free daily Forex trading signals? We’ve shortlisted the best UK forex broker in the industry for you.