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Head and Shoulders Pattern Forms

On Tuesday, data revealed that the country’s retail sales rose at a slower pace than previously expected.

  • Sell the GBP/USD pair and set a take-profit at 1.2345 (38.2% retracement).
  • Add a stop-loss at 1.2600.
  • Timeline: 1-2 days.
  • Set a buy-stop at 1.2530 and a take-profit at 1.2630.
  • Add a stop-loss at 1.2430.

The GBP/USD rate was unchanged after the Bank of England (BoE) pointed to more interest rate hikes in the coming months. The pair was trading at 1.2500, a few pips above this week’s low of 1.2423.

There are signs that the BoE and the Federal Reserve will diverge on interest rates in the coming months. In a statement on Wednesday, Andrew Bailey, the BoE governor said that the country was dealing with a major UK wage-price spiral that makes it difficult to fight the elevated inflation.

As a result, he warned that the bank could continue hiking interest rates in the coming months. Data published recently showed that the country’s inflation remains at an elevated level. The headline consumer price index remained above 10% in March while core inflation jumped. On Tuesday, numbers revealed that the country’s unemployment rate remained at 3.8%.

On the other hand, the Federal Reserve is expected to maintain interest rates unchanged in the next meetings. It has already hiked rates by over 500 basis points since last year. And with challenges in the economy remaining, analysts expect that the bank will not hike any time soon.

On Tuesday, data revealed that the country’s retail sales rose at a slower pace than previously expected. Further, on Wednesday, numbers showed that building permits dropped from 1.43 million in March to 1.41 million. On a positive side, data revealed that housing starts jumped to 1.4 million.

The GBP/USD pair was also reacting to the rising possibility that the US will not default on its obligations. This also explains why American stocks bounced back, with the Dow Jones rising by 360 points and the Nasdaq 100 jumping by over 140 points.

The GBP/USD pair has been in a bearish trend after hitting the year-to-date high of 1.2665. It dropped to a low of 1.2430, the lowest point since April 27. The pair has moved below the important resistance point at 1.2547, the highest level on April 14. It has dropped below the 25-day and 50-day exponential moving averages (EMA).

Sterling has also formed what looks like a head and shoulders pattern. Therefore, the pair will likely have a bearish breakout, with the next reference level being at 1.2345 (38.2% retracement point).


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