Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2595.
- Add a stop-loss at 1.2750.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.2700 and a take-profit at 1.2750.
- Add a stop-loss at 1.2620.
The GBP/USD price bounced back after the strong UK inflation data punctured hopes that the Bank of England (BoE) will start cutting interest rates soon. The pair also rebounded after the strong US retail sales numbers. It rose to a high of 1.2672, higher than this week’s low of 1.2596.
Strong UK inflation report
The UK has published mixed economic numbers lately. Last week, a report by the Office of National Statistics (ONS) showed that the economy returned to growth in November. It expanded by 0.3% after slipping by 0.1% in the previous month, signaling that the economy is avoiding a recession.
On Tuesday, another report revealed that the labor market is still doing well as the unemployment rate remained at 4.2%. The only weak number was that the country’s wage growth decelerated as companies remained cautious.
Another data by the ONS showed that inflation remained stubbornly high in December, putting the Bank of England under pressure to act. The headline CPI rose by 0.4% in December leading to a YoY increase of 4.0%.
The core CPI also rose from -0.3% in November to 0.6% in December, also higher than the median estimate of 0.4%. It rose by 5.1% on a YoY basis. Therefore, the implication of these numbers is that the BoE will not cut interest rates any time soon.
Instead, the bank will likely decide to hold interest rates steady as it assesses inflation trends. Most analysts expect that the bank will start cutting in the second half of the year. UK stock indices like the FTSE 250 and FTSE 100 retreated while gilt yields rose.
The GBP/USD pair also rebounded after the strong US retail sales. According to the Commerce Department, the country’s retail sales rose by 0.6% in December while core sales rose by 0.4%. The key data to watch on Thursday will be the Philadelphia Fed manufacturing index.
GBP/USD technical analysis
The GBP/USD pair made a strong bearish breakout on Tuesday and moved below the lower side of the rising wedge pattern. It then staged a strong comeback on Tuesday after the strong UK inflation report. It remains below the 50-period moving average and the rising wedge pattern. Also, it has remained below the psychological point of 1.2700.
It is also between the second and first support lines of the Woodie pivot point tool. Therefore, the pair will likely resume the bearish move and possibly retest this week’s low at 1.2595.
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