Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.1600.
- Add a stop-loss at 1.1350.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 1.1425 and a take-profit at 1.1350.
- Add a stop-loss at 1.1525.
The GBP/USD price rose to the highest level since October 4 as the market reacted to the new Prime Minister. It rose to a high of 1.1495, which was about 10% from the lowest level in September of this year.
UK potential stability
Sterling made a bullish breakout as investors reacted to the new UK administration. Rishi Sunak, the new prime minister, decided to leave Jeremy Hunt as the Chancellor of the Exchequer. This means that there will be continuity since Hunt helped to undo most of Kwasi Kwarteng’s policies.
UK gilt yields retreated sharply as Sunak made his cabinet officials. The 30-year yield dropped to 3.68%. Two-year and ten-year yields were trading at 3.36% and 3.50% on Wednesday morning. This is a sign that the Bank of England will not be under pressure to hike interest rates in the coming months.
The GBP/USD price rose as the US dollar index continued its bearish trend. The DXY index dropped to about $110, which was lower than the year-to-date high of $115. This decline happened as investors reflected to the latest US housing and consumer confidence data.
According to the Conference Board, consumer confidence declined from 107.8 in September to 102.5 in October. This decline was much lower than the median estimate of 106.5. Most consumers are still worried about soaring inflation and high-interest rates.
Meanwhile, with mortgage rates rising, house prices declined by 0.7% on a month-on-month basis. It declined from 13.9% in July to 11.9% on a year-on-year basis. This happened as mortgage rates rose to over 6% in August.
The only key data to watch will be the latest American new home sales numbers. Economists expect the data to show that sales tumbled by 13.9% in September after rising by 28.8% in August.
GBP/USD forecast
The GBP/USD price has been in a bullish trend recently. It rose to the 61.8% Fibonacci Retracement level The pair also rose above the important resistance point at 1.1438, which was the highest point on October 17.
It has moved above the 25-day and 50-day moving averages while the Relative Strength Index (RSI) rose to the overbought level. A move above 1.1500 will invalidate the double-top pattern, and see it rise to 1.1600.
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