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 continued its strong rebound as investors waited for the latest Bank of England (BoE) interest rate decision. It jumped from a low of 1.3145 to a high of 1.3370.
Bank of England Interest Rate Decision
The GBP/USD pair continued its strong rally as market participants focused on the upcoming BoE rate decision. Economists polled by Reuters and Bloomberg expect the bank to cut interest rates by 0.25%, with 7 official voting in favor.
The BoE has been more cautious than other central banks like the European Central Bank (ECB) and Bank of Canada (BoC). It has slashed rates just three times since last year, bringing them from 5.25% to 4.25%.
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The bank has been concerned about the steady inflation, which has moved to 3.6% from 1.7% in September last year. It remains much higher than the bank’s target of 2.0% and that of other countries.
For example, the headline Consumer Price Index (CPI) in the US stands at 2.7%, while the European Union is at 2%.
Therefore, the UK is in a stagflation, a period characterized by soaring inflation and stagnant economy. The BoE believes that the country’s inflation will be temporary because it is being mostly driven by rising food prices.
The GBP/USD pair will also react mldly to the upcoming Halifax house price index (HPI) data. Analysts expect the figure to show that the index rose from 0% in June to 0.3% in July.
Traders are also reacted to the weakening US dollar and rising bond yields after a weak auction by the Treasury Department. The 10-year note auction rose to 4.25% as demand weakened because of the slowdown of the US economy.
GBP/USD Technical Analysis
The daily chart show that the GBP/USD pair has rebounded after bottoming at 1.3145 earlier this month. This rebound happened after the pair formed a bullish engulfing pattern, where a bullish candle follows a small bearish one.
The pair retested the important resistance level at 1.3370, the neckline of te head-and-shoulders pattern. H&S is a highly popular bullish reversal pattern.
The pair remains below the 50-day moving average. It has also formed a break-and-retest pattern, meaning that the ongoing rebound is a dead-cat bounce. This is a situation where a falling asset rebounds briefly and the resumes the downtrend.
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