Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2500.
- Add a stop-loss at 1.2700.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.2745 and a take-profit at 1.2825.
- Add a stop-loss at 1.2650.
The GBP/USD pair suffered a major reversal after the strong US jobs numbers led to doubts about the next Federal Reserve rate cuts. The pair retreated to the key support point at 1.2600 on Monday, much lower than last week’s high of 1.2770.
Fed and BoE statements
The GBP/USD exchange rate retreated sharply as the US dollar index rebounded after the strong NFP numbers. The report by the Bureau of Labor Statistics (BLS) revealed that the economy added over 353k jobs in January, smashing analysts estimates of 200k. The unemployment rate remained at 3.7% while wages continued rising.
These numbers came two days after the Federal Reserve delivered its first interest rate decision of the year. As was widely expected, the bank decided to leave interest rates unchanged between 5.25% and 5.50%. In the accompanying statement, Jerome Powell reiterated that the bank was prepared to hike this year. But he ruled out cutting in March since the US economy is doing well.
Recent economic numbers have shown that the economy is doing well. In addition to the NFP report, the US published strong manufacturing PMI report last week and GDP numbers a week earlier. IMF also boosted its outlook for the economy.
Meanwhile, the Bank of England also decided to leave its interest rates unchanged. Andrew Bailey, the bank’s governor, also committed to start cutting rates when it sees that inflation is falling faster enough.
The BoE expects that inflation will hit its 2% target in the next few months when the cost of energy is considered. But it also expects inflation to bounce back again later this year.
The next important GBP/USD news will come from the US, where the ISM will publish the latest non-manufacturing PMI report later today. Several Fed officials are expected to deliver statements this week.
GBP/USD technical analysis
The GBP/USD pair suffered a harsh reversal after the strong NFP data. As the pair dropped, it crossed the ascending trendline that connects the lowest swing since December last year. It also slipped below the 50-period and 25-period moving averages, signaling that bears are in control.
This retreat happened after the pair formed what looks like a triple-top pattern at 1.2770. Therefore, the pair will likely continue falling, with the next reference point to watch being at 1.2500.
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