Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2575.
- Add a stop-loss at 1.2700.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.2645 and a take-profit at 1.2725.
- Add a stop-loss at 1.2580.
The GBP/USD exchange rate rebounded as the US dollar index (DXY) retreated after surging hard last week. The pair jumped to a high of 1.2640 on Tuesday morning, higher than last Friday’s low of 1.2575.
US dollar index retreats
The GBP/USD pair rebounded as the US dollar pulled back. The index retreated by 25 basis points to $103.95. This retreat coincided with the sharp retreat of US bond yields. The 10-year bond yield dropped to 4.25% while the 30-year fell to 4.38%.
The performance of the US dollar happened after mixed statements from two Federal Reserve officials. In a note, Raphael Bostic argued that it was too early to predict that the Fed would deliver three rate cuts this year.
He noted that the US had avoided a hard landing and that inflation remains above the Fed’s target of 2.0%. The most recent data revealed that the headline consumer inflation rose to 3.1% in February while core CPI rose to 3.8%.
In a separate statement, Lisa Cook, a Fed board member, noted that the Fed was succeeding in lowering inflation. She supports Jerome Powell’s view that the bank should deliver three rate cuts this year.
There will be no economic data from the UK on Tuesday. Therefore, traders will focus on the upcoming US economic numbers.
The Conference Board will publish the February consumer confidence data. An improvement of confidence will be a positive sign for the US economy.
The other important numbers to watch will be the US house price index (HPI) and durable goods orders. Recent numbers revealed that durable goods have been in a strong downward trend. They tumbled by 6.1% in January after falling by 0.3% in December.
The house price index has shown that prices have remained steady in the past few months even as mortgage rates continued rising.
GBP/USD technical analysis
The GBP to USD pair tumbled to a low of 1.2575 on Friday as the US dollar index (DXY) rebounded. It then rebounded to a high of 1.2650 on Monday as the DXY retreated. It retested the important Woodie pivot point.
The pair remains below the 50-period Arnaud Legoux Moving Average (ALMA) while the Commodity Channel Index (CCI) is pointing upwards. Therefore, this rebound may be a sign of a dead cat bounce, meaning that it will likely resume the downward trend and retest last week’s low of 1.2575.
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