Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.2635.
- Add a stop-loss at 1.2470.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 1.2535 and a take-profit at 1.2470.
- Add a stop-loss at 1.2635.
The GBP/USD pair moved sideways on Monday morning as traders continued to focus on the upcoming Bank of England (BoE) interest rate decision. It also remained steady after last week’s Fed decision and weaker US economic numbers. It was trading at 1.2550, where it has been stuck at in the past few days.
Bank of England's decision ahead
The GBP/USD reacted mildly to last week’s Fed decision and weak US economic data. In its meeting, the Fed left interest rates unchanged between 5.25% and 5.50%. The committee also hinted that it will be data-dependent in determining when to start cutting rates.
Recent economic numbers have not been encouraging. Inflation remains significantly above 2% and is not falling. At the same time, the jobless rate rose to 3.9% in April as the economy added 175k jobs during the month.
The manufacturing and services sectors are also not doing well. Data by the ISM showed that the manufacturing and services PMI numbers dropped below 50 in April, signaling that the two sectors are contracting.
Therefore, analysts estimate that the Federal Reserve will deliver two rate cuts this year. The challenge is that any actions could be seen as being political. Donald Trump has argued that a rate cut would help Joe Biden in the presidential race.
Looking ahead, the key GBP/USD news will be the upcoming Bank of England (BoE) interest rate decision set for Thursday. The bank will leave interest rates unchanged at 5.25%, the highest point in 16 years.
Analysts expect that the bank will remain optimistic about the UK economy but avoid hinting to a June rate cut. The bank’s challenge is that the country’s inflation picture is still uncertain. Analysts expect it to drop to the bank’s target of 2.0% soon and then start rising gradually.
GBP/USD technical analysis
The GBP/USD pair has been in an uptrend after bottoming at 1.2297 in April to a high of 1.2635 last week. On the 4H chart, the pair has formed an inverse head and shoulders pattern, which is a popular reversal sign. It has risen above the 38.2% Fibonacci Retracement level.
The pair has risen slightly above the 50-period moving average and the Ichimoku cloud indicator. Also, the MACD indicator has remained above the neutral point. Therefore, the pair will likely resume the bullish trend and retest last week’s high of 1.2635. The stop-loss of this pattern will be at 1.2470.
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