Bullish view
- Set a buy-stop at 1.2676 and a take-profit at 1.2750.
- Add a stop-loss at 1.2600.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 1.2625 and a take-profit at 1.2575.
- Add a stop-loss at 1.2725.
The GBP/USD pair jumped to the highest level in 2023 after the Federal Reserve decision. It jumped to a high of 1.2696, the highest level since April 2022. This means that sterling has jumped by over 22% from the lowest point last year.
Fed decision, US retail sales
There is a likelihood that the Federal Reserve and the Bank of England will diverge this month. In a statement on Wednesday, the Fed decided to leave interest rates unchanged at 5.25%. This decision came a day after data from the US showed that inflation dropped to 4.0% in May.
The pause will allow the Fed to assess whether inflation is falling faster enough. In the statement, Jerome Powell said that most Fed officials believe that interest rates will need to rise again this year. The dot plot pointed to two more 0.25% hikes this year.
Meanwhile, analysts believe that the Bank of England will need to hike interest rates by another 0.25% when it meets next week. The most recent data showed that the country’s inflation dropped to 8.3% in April, significantly higher than the BoE’s target of 2.0%.
The GBP/USD pair will react to the Fed decision as investors assess what to expect going forward. The next key economic numbers to watch will be the latest US retail sales data. According to Reuters, most analysts expect the data to show that retail sales dropped by 0.1% in May after rising by 0.4% in the previous month. They expect that sales jumped by 2.2% on a YoY basis.
The US will also publish the latest Philadelphia Fed manufacturing index data. Going by the recent manufacturing PMI data, analysts expect that the manufacturing index dropped to -13.5 in June.
GBP/USD technical analysis
The GBP/USD pair has been in a bullish trend after bottoming at 1.2307 in May this year. Since then, the pair has constantly moved above the 50-period exponential moving average. The pair briefly moved slightly above the important resistance point at 1.2676, the highest point on May 7th.
It has formed a cup and handle pattern, which is a sign of a bullish continuation. Therefore, the pair will likely continue rising as buyers target the next key resistance point at 1.2750. This view will be confirmed if it moves above this week’s high of 1.2692.
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