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GBP/USD Forex Signal: Sterling Rally Could Gain Steam

Bullish view

  • Buy the GBP/USD pair and set a take-profit at 1.2910.
  • Add a stop-loss at 1.2750.
  • Timeline: 1-2 days.

Bearish view

  • Set a sell-stop at 1.2835 and a take-profit at 1.2750.
  • Add a stop-loss at 1.2915.

GBP/USD Signal Today - 11/07: GBP/USD Rally Possible (Chart)

The GBP/USD pair made a bullish breakout as traders started to pare back their Bank of England (BoE) interest rate cut expectations. It rose to a high of 1.2840, its highest point since March 11th as investors wait for the US inflation data.

Potentially hawkish BoE

The GBP/USD pair rose after a hawkish statement by Huw Pill, Bank of England’s (BoE) Chief Economist.

In a statement, he reiterated that the bank’s interest rate cut was a matter of when not if. However, he maintained the view that it was still too early to predict when the rate cut will happen since core inflation has remained stubbornly high.

While the headline inflation dropped to the bank’s 2% target in May, core inflation, which excludes food and energy, remained above 3.4%.

Therefore, traders have scaled back their BoE rate cut expectations. While most analysts expect a rate cut in the next meeting, other analysts expect it in its August meeting.

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    The GBP/USD pair will react mildly to the upcoming UK GDP numbers, which will come out on Thursday morning. While these numbers are important, they will not have an impact on the next BoE actions.

    The main data to watch will be the upcoming US inflation data, which will help to determine the next Fed actions. If the data shows that inflation is falling, it will raise the possibility that the Fed will cut rates in September.

    On the other hand, if the headline and core inflation beat analysts estimates, they will make the case for a more hawkish Fed.

    In his statement to Congress this week, Jerome Powell said that the Fed wanted to confirm that inflation was falling before cutting rates.

    The median estimate is that the headline CPI dropped to 3.1% while the core inflation figure remained unchanged at 3.4%.

    GBP/USD technical analysis

    The 4H chart shows that the GBP/USD pair has been in a bullish trend in the past few days. It rose to a high of 1.2850, its highest level since March this year.

    The pair has formed an inverse head and shoulders pattern and is now hovering at its neckline. It has also moved above the 50-period and 25-period Exponential Moving Averages (EMA)

    The Average Directional Index (ADX) has moved above 50, signaling that the trend is strengthening. Also, the Relative Strength Index (RSI) has moved to the overbought level.

    Therefore, the pair will likely continue rising as buyers target the first resistance of the Woodie pivot point at 1.2900.

    Crispus Nyaga
    About Crispus Nyaga
    Crispus Nyaga is a financial analyst, coach, and trader with more than 8 years in the industry. He has worked for leading companies like ATFX, easyMarkets, and OctaFx. Further, he has published widely in platforms like SeekingAlpha, Investing Cube, Capital.com, and Invezz. In his free time, he likes watching golf and spending time with his wife and child.
     

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