Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2350.
- Add a stop-loss at 1.2520.
- 1.2 days.
Bullish view
- Set a buy-stop at 1.2450 and a take-profit at 1.2500.
- Add a stop-loss at 1.2500.
The GBP/USD pair continued its freefall as signs emerged that the UK was beating the US on inflation, a move that could lead to earlier rate cuts by the Bank of England (BoE). The pair plunged to 1.2440 on Tuesday morning, its lowest swing since November last year.
UK and US inflation trends
There are signs that the UK is doing better than the US in terms of inflation. US data showed that the US inflation rose to 3.5% in March while the core Consumer Price Index (CPI) remained at 3.8%. There are signs that the two figures will take time to get to the Fed’s target of 2.0%.
The UK will publish its inflation numbers on Wednesday. Economists polled by Bloomberg anticipate the figure to show that the headline CPI retreated to 3.1% in March while the core CPI moved to 4.1%.
There are signs that the country’s inflation will continue falling as energy prices retreat. Analysts predict that the ongoing pullback of gas prices will see the UK hit its 2% target in April.
Therefore, if these forecasts are correct, it means that the Bank of England will have a room to start rate cuts this year. Analysts are anticipating at least three cuts by the BoE if inflation continues falling.
The BoE is more inclined to start cutting rates earlier than the Fed because the British economy is not doing well. It is just emerging from a mini-recession and the unemployment rate is higher than in the US.
The Fed, on the other hand, does not have an urgency to slash rates since economic numbers have been quite strong. Data released on Monday showed that the country’s retail sales jumped sharply in March even as inflation rose.
The key economic events to watch on Tuesday will be the upcoming UK jobs numbers and the US housing starts and building permits data.
GBP/USD technical analysis
The GBP/USD pair continued its freefall in the overnight session as the dollar strength escalated. It has plunged below the crucial support level at 1.2520, the lowest swing on February 5th.
The 25-day and 50-day moving averages have made a bearish crossover while the MACD and the Relative Strength Index (RSI) is nearing the oversold level. The pair has also moved to the ultimate support of the Murrey Math Lines.
Therefore, the path of the least resistance for the pair is extremely bearish. A drop below the support at 1.2400 will point to more downside to 1.2350.
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