Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.2844.
- Add a stop-loss at 1.2680.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 1.2700 and a take-profit at 1.2600.
- Add a stop-loss at 1.2800.
The British pound has held quite well against the US dollar than other currencies like the euro and the Australian dollar. The GBP/USD pair was trading at 1.2760 on Monday morning, higher than this month’s low of 1.2620.
BoE and Fed converge
The GBP/USD price remained steady even as the US dollar bounced back against most currencies. The pair’s price action happened as investors reacted to important macro events from the US and UK last week.
Data from the UK showed that UK wages are rising at a faster pace than inflation. Such a reading means that the Bank of England’s fight against inflation is still a big challenge. Additional numbers revealed that the country’s inflation dropped at a slower pace than expected in July.
Therefore, there is a likelihood that the Bank of England (BoE) has more work to do in its fight against inflation. Analysts expect at least one more rate hike in its September meeting.
Across the pond, there is a possibility that the Fed will deliver another interest rate hike in its September meeting. That’s because the American economy is doing well even after the recent interest rate hikes.
For example, the most recent data showed that the housing sector is holding well, with building permits and housing starts rising. It is unclear whether the soaring mortgage rates, which stand at the highest level in more than a decade, will have an impact on the sector.
US inflation is falling, helping the closely-watched retail sector. Retail sales jumped in July while manufacturing and industrial production have rebounded. In a note to FT, an analyst at Danske Bank said:
“The narrative heading into the summer break was centered around the next big move was for lower rates, but markets seem to be caught wrongfooted here.”
Therefore, statements by the heads of the Bank of England (BoE) and the Federal Reserve at this week’s Jackson Hole Symposium will have an impact on the pair.
GBP/USD technical analysis
The GBP/USD pair found strong support at 1.2616 this month, where it formed a double-bottom pattern. This was an important level since it was the lowest level in June. The pair has moved slightly above the 25-period and 50-period moving averages.
It has also formed what looks like an inverted head and shoulders pattern. Therefore, the outlook for the pair is bullish, with the next resistance at 1.2800 followed by 1.2844 (June 16th high).
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