Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2685.
- Add a stop-loss at 1.2790.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.2730 and a take-profit at 1.2800.
- Add a stop-loss at 1.2685.
The US dollar index and bond yields continued rising as traders focused on the upcoming Federal Reserve decision. The GBP/USD dropped for three straight days ahead of the important UK inflation data and the BoE decision. It retreated to a low of 1.2723, lower than this month’s high of 1.2890.
BoE and Fed decision
This will be an important week for the GBP/USD pair as the BoE and the Federal Reserve delivers their second interest rate decisions of the year.
The Fed will make its decision on Wednesday followed by the BoE on Thursday. Economists expect the Fed to deliver a moderately hawkish interest rate decision since inflation in the country remains significantly high.
A report last week revealed that the core inflation rose to 3.8% in February while the Producer Price Index (PPI) rose slightly. As a result, some analysts expect the Fed will likely deliver fewer rate cuts this year than expected. In a report, analysts at Goldman Sachs placed the chances of a rate cut in June at less than 50%.
The Fed’s challenge is that the economy is showing signs of softening. The manufacturing PMI has dropped below the expansion zone of 50. Similarly, consumer confidence, has dropped in the past few months.
The other important GBP/USD news will be the upcoming UK inflation report and BoE decision. The country will publish its latest inflation data on Wednesday. Expectations are that the country’s inflation retreated in February as energy prices dropped.
Economists believe that the country’s inflation dropped from 4.0% in January to 3.5% in February. Core inflation is expected to move from 5.1% to 4.6%. If analysts are correct, these will be important numbers since they will come a day before the BoE makes its rate decision. Like the Fed, economists expect the bank to leave rates unchanged in this meeting.
GBP/USD technical analysis
The GBP/USD pair formed an evening star pattern on March 8th. In price action analysis, this is one of the most bearish candlestick patterns. It has flipped the important support level at 1.2792, its highest point in December.
On the daily chart, the pair remains slightly above the 50-day Exponential Moving Average (EMA) of 1.2685. The Relative Strength Index (RSI), MACD, and the Stochastic Oscillator have all pointed downwards.
Therefore, the pair will likely be muted on Tuesday ahead of the UK inflation and Fed decisions on Wednesday. The price to watch will be the 50-day moving average level of 1.2685. A drop below that point will signal more downside, with the next level to watch being the ascending trendline, which connects the lowest swing since November 17th at 1.2600.
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