Bearish view
Sell the GBP/USD pair and set a take-profit at 1.3250.
Add a stop-loss at 1.3415.
Timeline: 1-2 days.
Bullish view
Buy the GBP/USD pair and set a take-profit at 1.3415.
Add a stop-loss at 1.3250.
The GBP/USD pair made a strong bullish breakout on Friday, continuing the recovery that started after it made a false breakout on Wednesday. It jumped to 1.3371, 232 pips below its lowest level this month. Focus will now be on key macro data from the United Kingdom.
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UK Jobs, Inflation, and Retail Sales Data
The GBP/USD pair was highly volatile last week. It initially dropped to 1.3140 on Wednesday and then surged to 1.3371 after Kevin Warsh delivered his statement at an IMF meeting. While he did not offer cues on what to expect, he hinted that the Fed will not hike rates again this month.
The Fed is under intense pressure because of the steady inflation in the country. The headline Consumer Price Index (CPI) rose 3.7% last month, while core inflation rose 2.7% during the month. US inflation will likely continue rising because of the performance in the energy sector, where Brent and the West Texas Intermediate (WTI) have continued rising. These prices have had an impact on gasoline and diesel prices.
The GBP/USD pair will react to the upcoming macro data from the UK, which will provide more information about the economy. The Office of National Statistics (ONS) will publish the latest unemployment and jobs numbers on Tuesday.
Most importantly, it will release the latest consumer inflation report on Wednesday. Economists expect the report to show that the headline Consumer Price Index (CPI) rose 3.4% in September from the previous 3.1%. Core inflation, which excludes the volatile food and energy prices, is expected to jump from 2.6% to 2.8%.
These numbers come as investors are predicting that the Bank of England will need to hike interest rates later this month. The rate hike will help it to curb the rising inflation.
GBP/USD Technical Analysis
The daily chart shows that the GBP/USD pair remained in a tight range for days. This consolidation happened after the pair dropped from 1.3674 on August 24 to a low of 1.3184. It formed a bearish flag pattern, which often leads to more downside.
The pair then made a false breakout on Wednesday. It then rebounded and reached a high of 1.3371. It still remains below the 50-day moving average and the Supertrend indicator.
Therefore, the pair will likely resume the downward trend, potentially to the psychological level of 1.3250. A move above the resistance level of 1.3371 will invalidate the bearish outlook.
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