Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.3340.
- Add a stop-loss at 1.3600.
- Timeline: 1-2 days.
Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.3600.
- Add a stop-loss at 1.3340.
The GBP/USD exchange rate pulled back to its lowest level since January 23rd after the UK published an encouraging inflation report on Wednesday. It dropped to a low of 1.3482, down by 2.7% from its highest level this year.
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UK Inflation Has Slipped
The GBP/USD pair dropped sharply after a report showed that the headline Consumer Price Index dropped from 3.4% in December last year to 3.0% in January. It moved from 04% to minus 0.5% on a monthly basis.
Similarly, core inflation, which excludes the volatile food and energy prices, dropped from 0.3% to minus 0.6% on a MoM basis and from 3.2% to 3.1% on a YoY basis.
The report also showed that the retail price index dropped from 4.2% in December to 3.8%, better than the median estimate of 3.9%.
Also, the producer price index also continued falling in January, moving from 3.1% to 2.5%. Therefore, this report means that inflation is continuing moving downwards, potentially to the target of 2.0%.
Such a move will push the Bank of England (BoE) to deliver several interest rate cuts this year.
The GBP/USD pair also reacted to some key macro numbers from the United States. A report showed that building permits continued falling, reaching 1.38 million in November, while the housing starts rose to over 1.4 million.
The next key catalyst for the pair will be the upcoming statements by key Federal Reserve officials like Michele Bowman and Neel Kashkari.
These statements will come a day after minutes showed that officials were split on where rates should go. The minutes showed that officials were not in a hurry to cut rates, with some officials supporting hikes.
GBP/USD Technical Analysis
The daily timeframe chart shows that the GBP/USD pair has remained under pressure in the past few days, moving from a high of 1.3866 earlier this year to the current 1.3495. It has moved to the lowest level since January 23 this year.
The pair has dropped below the key level at 1.3724, its highest level in September last year. It also dropped below the key support level at 1.3510, its lowest level on February 6.
It has dropped below the 50-day Exponential Moving Average (EMA), while the Relative Strength Index (RSI) moved below the neutral level at 50.
Therefore, the pair will likely continue falling as sellers target the key support level at 1.3340, its lowest level on January 19.