Bearish view
Sell the GBP/USD pair and set a take-profit at 1.3200.
Add a stop-loss at 1.3450.
Timeline: 1-2 days.
Bullish view
Buy the GBP/USD pair and set a take-profit at 1.3450.
Add a stop-loss at 1.3200.
The GBP/USD pair retreated to 1.3340 on Monday morning, continuing the sell-off that started last week after the stellar US inflation numbers. It has now dropped substantially from last month’s high of 1.3660 as focus shifts to more US macro data.
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US Consumer Inflation Data Ahead
The GBP/USD pair dropped as the US dollar gained momentum across the board following the US jobs numbers. A report released on Tuesday showed that the number of job vacancies jumped by over 700k in April.
Another one by ADP revealed that the private sector added 122k jobs last month, beating what analysts were expecting. Finally, the closely-watched non-farm payrolls (NFP) report by the Bureau of Labor Statistics (BLS) showed that the economy created 172k jobs, higher than the median estimate of 85k.
These numbers mean that the labor market is still strong despite the ongoing US-Iran war. Still, there are concerns that some of these jobs are temporary because of the World Cup.
The next important GBP/USD news will be the upcoming US consumer inflation report, which will come out on Wednesday. This will be a crucial one as it will provide more information on what the Federal Reserve will do this year.
Economists expect the data to reveal that the headline CPI rose 4.2% in May, its highest level in years. This figure means that inflation is moving further away from the Federal Reserve’s target of 2.0%.
As such, it will hint that the Fed will hike interest rates this year, a move that will disappoint President Donald Trump. In an NBC interview, Trump insisted that the bank should cut rates, a move that he expects will supercharge the economy.
The GBP/USD pair will also react to the ongoing quagmire between the US and Iran in the Middle East, where the fragile ceasefire is being challenged.
GBP/USD Technical Analysis
The daily chart shows that the GBP/USD pair has pulled back in the past few days. It has dropped from a high of 1.3657 on May 1 to 1.3340 today. This price is its lowest level since May 18.
The pair has moved below the 50-day Exponential Moving Average (EMA) and the 61.8% Fibonacci Retracement level. Also, the Relative Strength Index (RSI) has moved below the neutral point at 50 and is pointing downwards.
Therefore, the pair will likely continue falling as the odds of a Fed rate hike rise. If this happens, the next key level to watch will be at 1.3156, its lowest point in March this year.
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