Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2600.
- Add a stop-loss at 1.2800.
- Timeline: 1-2 days.
Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.2800.
- Add a stop-loss at 1.2700.
The GBP/USD exchange rate price held steady as the market reflected on last week’s economic numbers from the UK. After retreating to 1.2596 on January 17th, the pair rebounded to 1.2700.
UK mixed economic numbers
The GBP/USD pair reacted mildly to last week’s data dump from the UK. On Tuesday, the Office of National Statistics (ONS) said that the country’s labor market remained quite strong as the unemployment rate stood at 4.2%.
On Wednesday, the agency published stronger-than-expected inflation numbers that put more pressure on the Bank of England (BoE) to act. The report showed that the headline Consumer Price Index (CPI) jumped to 4.0% in the 12 months to December, higher than expectations.
There is a likelihood that the country’s inflation will continue rising in the coming months as the crisis in the Middle East continues. Retail companies like Tesco and Sainsbury have warned that the crisis will disrupt their supply chain, which could lead to higher inflation.
Complicating the issue for the Bank of England is a report that came out on Friday. According to the ONS, the country’s retail sales plunged hard in December as the Christmas season (check out our Holiday Season Trading Schedule article) disappointed.
Retail sales dropped 3.2% after jumping by 1.4% in the previous month. That deep was worse than what economists were expecting. Core sales also continued falling. Therefore, the BoE is in a bind since more hikes are needed to calm inflation. But higher rates could lead to a substantial slowdown of the economy.
Looking ahead, there will be no major data from the UK and the US in the next few days. The only data to watch this week will be the first estimate of US GDP data scheduled for Thursday and PCE numbers set for Friday.
GBP/USD technical analysis
The GBP/USD pair bottomed at 1.2596 last week and has now been in an uptrend. It has already crossed the first support of the Woodie pivot point. The pair has also moved slightly above the 50-period moving average while the two lines of the Stochastic Oscillator have pointed downwards.
The most important bearish case for the pair is the rising wedge pattern that formed a few weeks ago. As such, this recovery seems to be part of a break-and-retest pattern. Therefore, there is a likelihood that the pair will resume the bearish trend and move below the support at 1.2600.
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