GBP/USD Forex Signal: Inverse Head and Shoulders Pattern Forms

Bullish view

• Buy the GBP/USD pair and set a take-profit at 1.3750.
• Add a stop-loss at 1.3430.
• Timeline: 1-2 days.

Bearish view

• Sell the GBP/USD pair and set a take-profit at 1.3430.
• Add a stop-loss at 1.3750.

The GBP/USD exchange rate was flat on Thursday as traders positioned themselves for the upcoming interest rate decisions by the Federal Reserve and the Bank of England (BoE). It was trading at 1.3530, inside the range it has been in the past few weeks.

Federal Reserve and Bank of England Interest Rate Decisions

The GBP/USD pair remained on edge after as focus remained on the upcoming macro data from the US and next week's interest rate decisions by the Fed and the BoE.

In a note on Wednesday, analysts at UBS, HSBC, and Deutsche Bank predicted that the Bank of England will leave interest rates unchanged in the coming meeting as it observes trends on inflation and the UK budget. The most recent report showed that the headline and core inflation remained stubbornly high in July as energy prices jumped.

Most analysts, on the other hand, predict that the Federal Reserve will cut interest rates for the first time this year next month. What is unclear is the magnitude of the rate cut, with analysts torn between 50 and 25 basis points. A clear signal on what the bank will do will emerge today when the US publishes the August inflation data.

The most likely scenario is that the headline Consumer Price Index will come out lower than expected after the encouraging PPI report that was published on Tuesday. After rising substantially in July, the PPI and core PPI metrics were weaker than what most analysts were expecting.

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A smaller inflation report will raise the probability that the Federal Reserve will cut interest rates by 0.50% next week. On the other hand, a higher than expected report will point to smaller interest rate cuts.

GBP/USD Technical Analysis

The daily timeframe chart shows that the GBP/USD pair has moved sideways and is slightly above the important support level at 1.3428, the highest swing in September last year and April 28.

The pair has moved above the 50-day moving average, and formed an inverse head and shoulders pattern. Therefore, the most likely GBPUSD forecast is where it rises and hits the year-to-date high of 1.3787.

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