Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.3353.
- Add a stop-loss at 1.3550.
- Timeline: 1-2 days.
Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.3550.
- Add a stop-loss at 1.3350.
The GBP/USD exchange rate retreated sharply after the US published the latest Consumer Price Index (CPI) data. It also dropped as geopolitical risks pushed investors to the safety of the United States dollar. It fell to a low of 1.3435, much lower than the year-to-date high of 1.3565.
US Retail Sales Data Ahead
The GBP/USD pair dropped sharply after the Bureau of Labor Statistics (BLS) published the latest Consumer Price Index (CPI) data on Tuesday. The report showed that the headline CPI remained unchanged at 2.7% in December, while the core CPI dropped to 2.6%.
There are signs that US inflation will continue to fall in the coming months, now that energy prices and mortgage rates have started falling. Mortgage rates have dropped to a three-year low, and a recent announcement by Trump pushing Fannie Mae to buy mortgage securities worth $200 billion will have an impact.
Looking ahead, the US will release some key macro data later today. The BLS will publish the latest Producer Price Index (PPI) data, which will provide more information on inflation. Also, the Commerce Department will publish the latest retail sales data, which will provide more color on consumer spending in December.
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The GBP/USD pair will also react to several statements from Federal Reserve officials. Those officials who will deliver statements are Stephen Miran, Neel Kashkari, John Williams, and Anna Poulson. These will be their first statements since the US released its jobs and inflation data.
However, these numbers will likely not change their views on the Federal Reserve's policies, with odds of no cut in January remaining close to 100%.
GBP/USD Technical Analysis
The eight-hour timeframe chart shows that the GBP/USD exchange rate has pulled back sharply in the past two weeks, moving from a high of 1.3566 on January 6 to the current 1.3435.
It has moved below the lower side of the ascending channel and even formed a head-and-shoulders pattern, a common bearish reversal sign.
The pair has also moved below the Supertrend indicator and the 50-period Exponential Moving Average (EMA).
Therefore, the most likely scenario is where it continues falling as sellers target the 38.2% Fibonacci Retracement level at 1.3355, which is about 60 basis points below the current level.
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