Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.2730.
- Add a stop-loss at 1.2600.
- Timeline: 1-2 days.
Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2600.
- Add a stop-loss at 1.2730.
The GBP/USD exchange rate continued its downtrend as traders continued assessing last week’s interest rate decisions by the Federal Reserve and the Bank of England (BoE). The pair retreated to a low of 1.2630, its lowest swing since December 14th.
UK inflation data ahead
The GBP/USD pair retreated as concerns about the British economy continued. There are increasing chances that the economy wil sink into a recession or stagflation. Data published last week showed that the British economy contracted gradually in October.
Economic figures expected this week will likely show that inflation remained stubbornly high in November as retail sales continued falling. Precisely, analysts expect that the headline Consumer Price Index (CPI) dropped to 4.3% in November while core inflation fell to 5.5%. The two numbers are more than double the BoE’s target of 2.0%.
Retail sales are also expected to continue dropping. However, there have been some positive signs about the UK economy. Flash manufacturing and services PMIs published on Thursday were better than expected.
Other numbers have revealed that household confidence and the housing market have done well in the past few months. Still, analysts believe that the economy will remain in a stagflation period for a while, putting pressure on the Bank of England (BoE).
The GBP/USD pair also retreated as concerns about Fed rate cuts continued. Some Fed officials have warned that it was still too early to start deliberations on rate cuts as the bank hinted last week.
Looking ahead, the key data to watch on Tuesday will be the upcoming US building permits and housing starts. Economists polled by Reuters expect the data to show that housing starts rose to 1.36 million in November while building permits jumped to 1.47 million. Still, while important, the impact of these numbers on the USD will be minimal.
GBP/USD technical analysis
The GBP/USD pair continued pulling back on Monday and Tuesday morning. It has retreated below the crucial support level at 1.2731, its highest swing on November 29th. The pair has also dropped below the first support of the Andrews Pitchfork tool.
On a positive sign, it is still above the 50-period moving average and has formed a small hammer candlestick. Therefore, the outlook for the pair is bullish, with the next point to watch being 1.2731. The alternative is where it drops and retests the lower side of the pitchfork tool at 1.2600.
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