Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2150.
- Add a stop-loss at 1.2325.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.2300 and a take-profit at 1.2400.
- Add a stop-loss at 1.2200.
The GBP/USD price extended its gains on Tuesday evening and Wednesday morning as US bond yields and the US dollar retreated. The pair has recovered by over 2% from its lowest point this month and is now hovering at the highest point since September 22nd.
US inflation and FOMC minutes ahead
The IMF delivered mixed outlooks for the US and UK economies. In a statement, the IMF warned that the British economy will be the worst performer in the G7. It expects the economy to go through this stagflation for a while. Stagflation is characterized by high inflation and low economic growth.
The IMF also estimated that the Bank of England (BoE) will need to maintain high interest rates for a few years. Recent data shows that the economy is indeed weakening with house prices crashing and manufacturing remaining in a contraction zone for a while.
The US, on the other hand, is expected to do well this year. Its labor market has tightened while inflation has dropped from its pandemic high. It expects the economy to expand by 2.1% this year.
The GBP/USD pair also rose as US bond yields pulled back. The 10-year dropped to 4.63% while the 40-year fell to 4.82%. As such, some analysts have predicted that the bond sell-off has bottomed.
The US will publish the latest producer price index (PPI) data later on Tuesday. Economists expect the data to show that the PPI rose by 0.3% in September while the core PPI rose by 0.2%. The PPI numbers will come a day ahead of the closely watched CPI report.
The Federal Reserve will also publish minutes of the last meeting later today. These minutes will show more details of the deliberations that happened in the last meeting. In it, the bank left rates unchanged between 5.25% and 5.50%.
GBP/USD technical analysis
The GBP/USD pair has been in a bullish trend in the past few days. As it rose, the pair moved above the key resistance level at 1.2270, the highest swing on September 29th. The Relative Strength Index (RSI) has also been rising.
Most importantly, the pair has formed a rising wedge pattern, a popular sign of reversal. Therefore, the pair will likely have a bearish breakout in the coming days as sellers target the key support at 1.2150.
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