Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.3550.
- Add a stop-loss at 1.3800.
- Timeline: 1-2 days.
Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.3800.
- Add a stop-loss at 1.3550.
The GBP/USD exchange rate retreated sharply from the January high of 1.3876 to the current 1.3660. It dropped as traders waited for the upcoming Bank of England (BoE) interest rate decision.
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Bank of England Interest Rate Decision Ahead
The GBP/USD pair retreated as traders waited for the upcoming Bank of England (BoE) interest rate decision, which will come out later today.
Economists polled by Reuters expect the bank to leave interest rates unchanged at 3.75% as inflation remains substantially high. The most recent data showed that the headline Consumer Price Index (CPI) rose to 3.4% in December.
Still, the bank believes that inflation will drop in the coming months. In a note published on Wednesday, ING Bank noted that inflation will drop to 1.8% in April and then remain at 2.0% for the remainder of the year. This decline will happen because of the regulated price and tax changes.
The GBP/USD pair will also react to the upcoming initial and continuing jobless claims from the United States. Economists expect the report to show that the initial jobless claims moved from 212k to 209k.
This report will come out a day after ADP publishes the latest private payrolls data. The report showed that the private sector created 22k jobs after adding 37k jobs a month earlier. The official non-farm payrolls (NFP) data will not come out on Friday as initially scheduled because of the recent shutdown.
The GBP/USD pair reacted to the ISM non-manufacturing PMI data, which showed that the economy did well in January. It rose to 53.8 from the previous 53.5, a sign that the sector is doing well.
GBP/USD Technical Analysis
The daily timeframe chart shows that the GBP/USD pair has pulled back in the past few days, moving from a high of 1.3878 to the current 1.3658.
It has moved below the important support level at 1.3727, its highest level in September last year. The pair has remained above the 50-day Exponential Moving Average (EMA) and the Supertrend indicator.
However, the pair has formed a small bearish flag pattern, which is made up of a vertical line and a channel. Therefore, the pair will likely continue falling as sellers target the next key support level at 1.3550. A move above the key resistance level at 1.3800 will invalidate the bearish outlook.
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