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 1.2615 and a take-profit at 1.2725.
- Add a stop-loss at 1.2550.
The GBP/USD pair bounced back slightly as the US dollar index strength waned. The pair rebounded and retested the key resistance at 1.2596 on Wednesday morning. It remains sharply below the year-to-date high of 1.2793.
UK housing data ahead
The GBP/USD exchange rate rose slightly even after a Bank of England (BoE) rate setter called for cutting interest rates in the UK. In a statement, Swati Dhingra said that the bank should consider cutting because it was underplaying the downside risks of high interest rates. Swati was the only BoE official who voted to cut rates in last week’s meeting.
The BoE is in between a rock and a hard place. The UK is expected to have the second slowest economic recovery in the G7, according to a report by the OECD. In this case, a rate cut would be ideal since it would help to stimulate the economy.
On the other hand, the country’s inflation remains stubbornly high, meaning that any cuts would have a negative impact, especially if the Fed maintains high rates. For one, the divergence between the Fed and the BoE would lead to more sterling weakness. Therefore, the BoE will likely hold rates steady for a while and then start cutting in the second half of the year.
The economic calendar will be muted on Wednesday. The key data to watch will be UK’s housing numbers by Halifax. Economists expect these numbers to show that the country’s house prices continued rising in January even as mortgage rates remained above historical standards.
The other key event that will likely move the GBP/USD pair will be the upcoming statement by Michele Bowman, a member of the Fed’s board. In her statement, she will likely reiterate what other officials have said that it was too early to consider rate cuts in March.
GBP/USD technical analysis
The recent sterling sell-off took a breather on Tuesday as the US dollar retreated. As the GBP/USD pair rebounded, it retested the important resistance point at 1.2596, the lowest swing on January 17th. In most cases, a break and retest is one of the most important signs of a continuation.
The pair remains slightly below the middle line of the Bollinger Bands while the MACD indicator remains below the neutral point. Therefore, the outlook for the pair is bearish, with the next level to watch being at 1.2500.
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