Bearish View
- Sell the GBP/USD pair and set a take-profit at 1.2200.
- Add a stop-loss at 1.2400.
- Timeline: 1-2 days.
Bullish View
- Set a buy-stop at 1.2350 and a take-profit at 1.2420.
- Add a stop-loss at 1.2300.
The GBP/USD pair is still trading close to its lowest level this week as investors wait for the important American consumer price index (CPI) data. The pair is trading at 1.2320, which is slightly above the year-to-date low of 1.2260.
US Inflation Data
The GBP/USD pair has been in a strong bearish trend in the past few months as investors focus on the recent monetary policy by the Fed and BOE. While the two hiked interest rates, the BOE sounded a bit dovish as Andrew Bailey warned about a potential recession.
There will be no data from the UK on Wednesday. Therefore, investors will focus on the latest American inflation data. Economists expect these numbers to show that the country’s inflation declined slightly in April.
On a month-on-month basis, the CPI is expected to have declined from 1.2% to 0.2% in April. This decline is expected to translate to a 8.1% on a year-on-year basis. At the same time, the core CPI is expected to have dropped from 0.3% to 0.4%. On a YoY basis, the core CPI is expected to have fallen from 6.5% to 6.0%.
Inflation is an important data considering that it forms an important part of the Fed’s dual mandate. Therefore, a sign that inflation has peaked will send a signal that the Fed will slow its extremely hawkish sentiment.
Another important data to watch will be real earnings. Economists expect the data to show that the metric improved from -1.1% to -0.6%. This figure measures wages and salaries normalized for inflation. The other key data to watch will be the American federal budget balance. While it is an important data, its impact on the GBP/USD pair will be little.
GBP/USD Forecast
The GBP/USD pair has been in a narrow range in the past few days. It is trading at 1.2320, where it has been in the past few days. The pair has moved below the 25-day and 50-day moving averages while th e accumulation and distribution indicator has moved slightly lower. A closer look shows that it has formed what looks like a slanted head and shoulders pattern.
Therefore, the pair will likely have a bearish breakout after the US publishes its jobs numbers. If this happens, the next key level to watch will be at 1.2200.
