Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.2600.
- Add a stop-loss at 1.2400.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 1.2435 and a take-profit at 1.2335.
- Add a stop-loss at 1.2535.
The GBP/USD exchange rate made a bullish breakout after a hawkish statement by the Bank of England (BoE) economist and after the weak US Consumer Price Index (CPI) data. The pair jumped to the psychological level of 1.2500, the highest point since September 14th. It has soared by almost 4% from the lowest point in October.
Another BoE rate hike?
The biggest driver for the GBP/USD pair was the weaker US dollar index (DXY) after the latest US inflation data. According to the Bureau of Labor Statistics (BLS), the headline CPI dropped from 0.3% in September to 0.0% in October.
The MoM figure translated to a 3.2% YoY increase, also lower than the median estimate of 3.3%. Most importantly, core inflation was also weaker than expected as it dropped to 0.2% and 4.0% on a MoM and YoY basis, respectively.
These numbers are encouraging since they mean that the Federal Reserve will likely maintain interest rates unchanged in December. This explains why US equities continued surging.
The Dow Jones index rose by 1.40% on Tuesday while the S&P 500 and Nasdaq 100 indices jumped by 1.90% and 2.30%, respectively. This is a sign that investors are embracing a risk-on sentiment.
At the same time, America’s bond yields continued slipping. The 10-year bond yields dropped by 3.90% to 4.45% while the 30-year fell by 2.20% to 4.44%. Bond yields have tumbled recently after the recent weak economic numbers.
Meanwhile, the GBP/USD exchange rate continued rising after a hawkish tone by Bank of England’s (BoE) chief economist warned that another rate hike was needed. He expects that inflation will drop sharply from 10.4% as energy prices drops. The bank has hiked rates for eleven straight meetings from 0.1% to 4.25%.
GBP/USD technical analysis
The GBP/USD exchange rate continued rising on Tuesday and Wednesday morning. It moved above the important resistance point at 1.2430, the highest swing on November 6th. The pair has also jumped above the 38.2% Fibonacci Retracement point.
Further, the pair has moved above the 50-period and 25-period Arnaud Legoux Moving Averages (ALMA). The Stochastic Oscillator has risen to the extreme overbought level. Therefore, the outlook for the pair is bullish, with the next level to watch being at 1.2600.
Ready to trade our free daily Forex trading signals? We’ve shortlisted the best UK forex broker in the industry for you.