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Drops Below Key Support Ahead of US CP

The GBP/USD pair will next react to the upcoming interest rates decision by the Federal Reserve. 

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  • Buy the GBP/USD pair and set a take-profit at 1.2600.
  • Add a stop-loss at 1.2450.
  • Timeline: 1-2 days.
  • Sell the GBP/USD pair and set a take-profit at 1.2450.
  • Add a stop-loss at 1.2600.

The GBP/USD exchange rate made a strong reversal during the American and Asian sessions ahead of key economic data from the US and the UK. The pair dropped from Monday’s high of 1.2600 to a low of 1.2500.

The GBP/USD will have some volatility on Tuesday as investors react to the latest economic numbers from the UK and the US. The UK will publish the latest jobs numbers. Economists expect the data to show that the country’s unemployment rate remained at 3.7% in April. They also believe that the average earnings jumped by 6.8% during the month.

These will be important numbers since they will come a week ahead of the upcoming interest rate decision by the Bank of England (BoE). Expectations are that the bank will decide to hike interest rates by 0.25% since inflation remains above the target of 2.0%.

The main economic data to watch on Tuesday will be the upcoming consumer price index (CPI) data from the United States. Economists believe that the country’s inflation dropped in May, helped by the relatively strong US dollar and falling energy prices.

Precisely, analysts believe that the country’s CPI dropped from 4.9% in April to 4.1% in May. While this number is bigger than the BoE’s target of 2.0%, it is a big improvement from last year’s high of 9.4%. It is also a sign that the Fed’s actions are working.

The GBP/USD pair will next react to the upcoming interest rates decision by the Federal Reserve. Economists believe that the bank will leave rates intact at 5.25% this week. This view was confirmed by the new Fed chair, who argued that the pause was needed to give the bank time to assess the effectiveness of the past hikes.

The GBP/USD suffered a harsh reversal in the overnight session. This reversal happened after the pair retested the first support of the Andrews Pitchfork tool. It is now slightly above the lower side of this pitchfork tool. It dropped below the important support at 1.2538, the highest point on June 2nd.

The pair has remained above the 50-period moving average and the ascending trendline shown in blue. Therefore, the pair will remain in a bullish trend until it moves below the 50-period MA and the lower side of the pitchfork tool.

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