Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2200.
- Add a stop-loss at 1.2450.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.2410 and stop-loss at 1.2525.
- Add a stop-loss at 1.2325.
The GBP/USD price pared back most of the losses it made on Wednesday even as bets that the Bank of England (BoE) will slash rates later this year rose. It rose to 1.2400 during the American session after it fell to a weekly low of 1.2263 during the UK session.
Bets on BoE rate cuts rise
The GBP/USD exchange rate rose slightly as derivatives data showed that the BoE will need to cut rates n the fourth quarter. Interest rate swaps data shows that investors expect that the bank will hike rates by 50 basis points in the February meeting followed by 0.25% in its meeting in March. This trend will continue until it makes rate cuts in the final three meetings of the year.
This sentiment is supported by the fact that the British economy is struggling and that it could stay in a recession for a while. On Wednesday, data showed that factory price inflation dropped to the lowest point in almost a year while flash manufacturing and services PMIs remained in the contraction area.
Therefore, with inflation falling, analysts believe that the BoE has the incentive to lower rats in a bid to prevent a hard landing.
The main data to watch that will move the GBP/USD will be the fourth-quarter US GDP number. Economists expect that the economy expanded by 2.6% in Q4 after growing by 3.2% in the third quarter. They also see the GDP price index falling from 4.4% to 3.3% in the same period.
These numbers are important because they will be the first estimates. Stronger-than-expected numbers will provide the Fed to maintain its hawkish tone in next week’s meeting. The US will also release the latest durable goods order numbers, initial jobless claims, and new home sales.
GBP/USD forecast
The GBP/USD made a bearish breakout this week after it formed a series of bearish patterns. For example, it made a shooting star pattern on January 23rd. This is usually one of the most accurate bearish candlestick patterns in the industry. It had also formed a double-top pattern whose upper side was at 1.2445. A rising wedge also formed.
Therefore, the current rebound is likely a part of the break and retest pattern, which is usually a sign of a bearish continuation. If it works, the key point to watch will be the psychological level of 1.2200.
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