Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.2765.
- Add a stop-loss at 1.2625.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 1.2670 and a take-profit at 1.2600.
- Add a stop-loss at 1.2765.
The GBP/USD pair retreated and then bounced back as the market digested several important data and events on Tuesday. It initially dropped to the key support at 1.2640 and then bounced back to near 1.2700.
UK and US economic numbers
The UK published several important economic numbers on Tuesday. A report by the British Retail Consortium (BRC) showed that sales in shops dropped by 2.7% in December after rising by 1.6% in the previous month. That report also confirmed that shop inflation continued dropping in December, a positive sign.
However, another report showed that the corporate sector in the UK worsened in 2023 as more companies went bankrupt. Insolvencies surged to its highest point in over 30 years as interest rates remained high. High rates made access to capital difficult while many complained about Brexit, which has made doing business in Europe difficult.
Another report revealed that the country’s mortgage rates retreated fo the first time since 2021 as expectations that the BoE will slash rates rose. That will be difficult because inflation in the country remains two times higher than the BoE target.
Meanwhile, the IMF warned that the UK will be among the worst-performing economy in the G7. It estimates that the economy will expand by 0.6% this year and 1.6% in 2025. Only Germany will do worse. In the report, the IMF warned that tax cuts could have negative implications for the economy.
In the US, data showed that house prices continued rising in December while consumer confidence made some improvements.. The number of job openings also bounced back, signaling that the economy is strong.
The key GBP/USD news to watch will be the upcoming UK house price index, ADP jobs report, and the Federal Reserve decision. Economists agree that the Fed will maintain status quo, where it leaves rates unchanged and continues with its quantitative tightening policy. The Bank of England will also start its meeting and then deliver its decision on Thursday.
GBP/USD technical analysis
The GBP/USD pair has been in a narrow range since December last year. It has remained inside the support and resistance points at 1.2596 and 1.2785. The pair formed a small long-legged doji pattern on Tuesday and retested the first support of the Woodie pivot point at 1.2640. It has also remained slightly below the 50-period moving average.
Therefore, the outlook for the pair ahead of the FOMC decision is neutral. I expect that it will remain inside this range since this meeting will likely be uneventful. The key support and resistance levels to watch will be at 1.2640 and 1.2765, respectively.
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