Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2040.
- Set a stop-loss at 1.2200.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.2165 and a take-profit at 1.2250.
- Add a stop-loss at 1.2085.
The GBP/USD consolidation continued even as US bond yields and mortgage rates soared to the highest level in years. The pair also reacted mildly to the relatively hot UK consumer inflation numbers. It remained at 1.2165, a few points above this week’s low of 1.2130.
US bond yields and mortgage rates jumps
A sense of fear continued in the market as inflation fears remained. These fears helped to push bond yields sharply higher. The 30-year Treasuries jumped to 5.0%, the highest point since 2007.
Similarly, the 10-year yield surged to 4.88% while the yield curve inversion narrowed to -37.97. At the same time, the average 30-year mortgage rate surged to 8%, the highest it has been in more than a decade.
Meanwhile, the price of crude oil continued pumping, with Brent surging to $92 and West Texas Intermediate (WTI) hitting $88. This price action means that inflation could be a thorn in the flesh for a while.
Energy prices jumped after the war between Israel and Hamas escalated. Iran has suggested that other Middle East contries place an oil embargo to Israel, a move that would be inflationary.
Meanwhile, the cost of living crisis in the UK is continuing. A report by the Office of National Statistics (ONS) showed that the headline consumer inflation rose by 6.7% in September, higher than the median estimate of 6.6%.
Core inflation, which excludes the volatile food and energy products, rose by 6.1%, also higher than the expected 6.0%. These numbers are significantly above the Bank of England’s (BOE) target of 2.0%. This means that the bank could decide to maintain its hawkish tone in the coming meetings.
The next key GBP/USD news to watch will be the upcoming US Philadelphia Fed manufacturing index, existing home sales, and a statement by Jerome Powell, the Federal Reserve chair.
GBP/USD technical analysis
The GBP/USD exchange rate has been relatively muted in the past few days. It has found a strong support at 1.2130, the lowest level this week. It has moved slightly below the 25-period moving average.
The pair has drifted below the Woodie pivot point while the Relative Strength Index (RSI) has formed a symmetrical triangle pattern. Therefore, the outlook for the pair is bearish, with the next reference point being the first Woodie pivot point support at 1.200.
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