Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2500.
- Add a stop-loss at 1.2615.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.2570 and a take-profit at 1.2650.
- Add a stop-loss at 1.2500.
The GBP/USD price continued its downward trend as the US and UK inflation numbers diverged. Sterling retreated to 1.2550 on Thursday morning, down from this week’s high of 1.2692 as focus shifts to the upcoming UK GDP and retail sales numbers.
UK GDP and retail sales ahead
Tuesday and Wednesday were important days for the GBP/USD pair as the respective countries published their January inflation numbers. In the US, data by the Bureau of Labor Statistics (BLS) revealed that inflation remained stubbornly high.
The headline CPI rose by 3.1%, higher than the median estimate of 2.9%. Core inflation also remained at 3.9%, almost double the Fed’s target of 2.0%. These numbers, coupled with the recent strong non-farm payrolls (NFP) data, mean that the Fed will likely hold raes higher for longer.
Meanwhile, in the UK, inflation is moving in the right direction even as it remains stubbornly high. The headline CPI dropped by 0.6% in January after growing by 0.4% in the previous month. It remained at 4.0% on a YoY basis, better than the expected 4.1%.
Core inflation also moved in the right direction, at least on a MoM basis as it retreated by 0.4% in January from 0.9% in the previous month. It remained unchanged at 5.1% on a YoY basis. The country’s inflation rate is still much higher than the Bank of England (BoE) target.
Most analysts expect that the central bank will hold rates steady in the next few months and start cutting later this year. The view is that it could start slashing them in its meeting in May.
The next important GBP/USD news will be the upcoming UK GDP and retail sales numbers. Economists expect the data to show that the economy contracted on a QoQ basis in the fourth quarter.
GBP/USD technical analysis
The GBP/USD pair has retreated sharply in the past few days after the latest US and UK inflation numbers. It has moved below the key support level at 1.2613, its lowest swings since December 21st. The pair remains below the Ichimoku cloud while the Relative Strength Index (RSI) has dropped below the neutral point.
Therefore, the outlook for the pair is bearish but sellers will need to move below the key support at 1.2517, its lowest point on February 5th. A drop below that price will likely see it drop to the next psychological point at 1.2500.
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