Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.3430.
- Add a stop-loss at 1.3150.
- Timeline: 1-2 days.
Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.3150.
- Add a stop-loss at 1.3430.
The GBP/USD pair pulled back for four straight days as the recent bullish momentum faded. After soaring to 1.3431 in April, the pair dropped to 1.3270 as it moved into the handle section of the cup and handle pattern. The pair will be in the spotlight this week as the Bank of England (BoE) and the Federal Reserve deliver their interest rates decisions.
BoE and Federal Reserve interest rate decisions
The GBP/USD pair retreated after the strong US jobs numbers last week. According to the Bureau of Labor Statistics (BLS), there are signs that the labor market was doing well even as tariffs remain.
The economy created over 177k jobs in April, a figure that was higher than what most economists were expecting. Two days before the official report, data from ADP showed that the economy created just 61k private payrolls jobs.
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The GBP/USD pair will be in focus this week as investors focus on the upcoming Federal Reserve and Bank of England (BoE) interest rate decisions.
Economists expect these two banks to move into a divergent path. The main expectation is the Federal Reserve will leave interest rates unchanged at 4.50% as it has done in the past few meetings. It will do that even as Donald Trump continued to push it to cut rates, a risky move since inflation may bounce back soon.
The Bank of England, on the other hand, may decide to cut interest rates since the UK inflation is falling as the economy slows. Some BoE officials expect that inflation will keep falling, helped by cheap Chinese goods.
The other key catalyst for the GBP/USD pair is the rising hopes of Chinese and US trade talks. The two sides have expressed hopes of talks, which may reduce tensions in the near term.
GBP/USD technical analysis
The GBP/USD exchange rate has pulled back in the past few weeks. It dropped from a high of 1.3431 earlier this month to the current 1.3270 as the US Dollar Index (DXY) bounced back a bit.
The pair is likely forming the handle section of the cup and handle pattern, a popular bullish continuation sign. It remains above the 50-day and 200-day moving averages, which made a bullish crossover known as a golden cross pattern.
Therefore, the pair will likely remain in this range and then resume the bullish trend. If this happens, the next point to watch will be at 1.3430, the upper side of the C&H pattern.
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