Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.3000.
- Add a stop-loss at 1.3165.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.3140 and a take-profit at 1.3200.
- Add a stop-loss at 1.2985.
The GBP/USD price exchange continued rising as the US dollar index (DXY) dropped below the important support of $100. It jumped to a high of 1.3130, the highest point since April last year. In all, the pair has jumped by more than 26% from the lowest point in 2022.
UK Economic Data Ahead
The GBP/USD exchange rate continued rising after the US published the latest US consumer price index (CPI) data. Numbers published by the Bureau of Labor Statistics (BLS) revealed that US inflation dropped from 4.1% in May to 3.0% in June this year. Core inflation dropped below 5% for the first time since 2021.
Therefore, the US dollar dropped sharply as investors assessed the impact of the falling inflation and softening labor market on the Federal Reserve. Earlier this month, data showed that the non-farm payrolls (NFP) data rose by 209k in June.
Most analysts expect the Federal Reserve to hike rates by 0.25% this month followed by a pause. On the other hand, the Bank of England (BoE) is expected to continue hiking rates since inflation is a major challenge in the country.
The UK will publish the latest consumer inflation data on Wednesday. Economists polled by Reuters expect the data to show that the headline CPI dropped from 8.7% in May to 8.2% in June. They also expect the core CPI dropped from 7.1% to 6.8% in June.
These numbers are significantly above the 2% target even as the British pound jumped by more than 25% from last year’s low. A stronger pound helps to reduce inflation since the UK is a net importer of important goods like crude oil and natural gas.
The other important economic numbers to watch will be the upcoming US and UK retail sales numbers.
GBP/USD Technical Analysis
The GBP to USD exchange rate peaked at 1.3141 on Friday. On the 4H chart, the pair remains above all moving averages. It also flipped the crucial resistance level at 1.2847 (June 16 high) into a support.
The two lines of the MACD indicator have made a bearish crossover while the Relative Strength Index (RSI) has drifted downwards. Therefore, while the bullish trend will continue, I suspect that a mean reversion will happen in the near term. If this happens, it could retest the support at 1.3000.
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