Bullish view
Buy the GBP/USD pair and set a take-profit at 1.3600.
Add a stop-loss at 1.3300.
Timeline: 1-3 days.
Bearish view
Sell the GBP/USD pair and set a take-profit at 1.3300.
Add a stop-loss at 1.3600.
The GBP/USD pair rebounded and formed a bullish engulfing pattern amid signs that the crisis in the Middle East was ending. It rose to 1.3430 on Tuesday, up modestly from this month's low of 1.3248.
Inflation Concerns Ease
The GBP/USD pair rose after signs that Donald Trump was starting to de-escalate his war as crude oil prices surged and the stock market tumbled.
Data shows that crude oil prices continued falling, with Brent and the West Texas Intermediate falling from over $115 on Monday to below $90 on Tuesday. Oil also declined after G7 countries said that they were ready to release their oil reserves to stabilize the market.
Similarly, the stock market resumed the uptrend, with the Dow Jones and Nasdaq 100 rising by over 240 and 310 points, respectively.
This price action happened after Trump said that the war may be over soon, noting that the operation was ahead of schedule. He pointed to the damaged military installations and the killing of Supreme Leader Ayatollah Ali Khamenei.
The GBP/USD pair will react to the upcoming statements on the war in Iran and the crisis in the Middle East as there will be no major macro data from the United States and the United Kingdom.
Market participants will next react to the upcoming US inflation report on Wednesday this week. Economists expect the data to show that prices remained above the Federal Reserve’s target of 2%. Precisely, economists expect the data to show that the headline CPI rose 2.5% in February.
The GBP/USD pair is also reacting to the fading odds that the Bank of England (BoE) will not cut rates as analysts were expecting. That’s because inflation is expected to remain at an elevated level because of the ongoing war.
GBP/USD Technical Analysis
The daily chart shows that the GBP/USD pair has been in a strong downward trend in the past few weeks. This retreat faded on Monday as signs of the war ending emerged.
It has now formed a bullish engulfing pattern, which is made up of a big bullish candle that fully covers the previous one. This pattern often leads to a bullish reversal.
The engulfing pattern is happening at a crucial support level at 1.3310, its lowest point on December 17. Therefore, the pair will likely rebound as bulls target the key resistance level at 1.3550.