Sterling Prepares for a Brief Rally

• Buy the GBP/USD pair and set a take-profit at 1.300.
• Add a stop-loss at 1.2850.
• Timeline: 1 day.

• Set a sell-stop at 1.2850 and a take-profit at 1.2800.
• Add a stop-loss at 1.3000.

The GBP/USD exchange rate retreated after the relatively weak inflation data from the UK and housing numbers from the US. The pair retreated to a low of 1.2870, the lowest level since July 11th.

The UK published a set of encouraging consumer and producer inflation numbers. According to the Office of National Statistics (ONS), the country’s consumer price index (CPI) dropped to 0.1% in June from the previous 0.7% in May. This decline translated to a year-on-year decline of 7.9%.

Core inflation, on the other hand, dropped from 0.8% in May to 0.2% in June, translating to a year-on-year increase of 6.9%. All these numbers were weaker than what analysts were expecting.

The Retail Price Index (RPI) dropped from 0.7% to 0.3%. It moved from 11.3% to 10.7% on a YoY basis. Further, the producer price index dropped to -2.7% in June. These numbers mean that inflation is moving in the right direction.

The country’s inflation dropped as energy prices fell and the British pound rose. Sterling has jumped by more than 25% from the lowest level this year.

The GBP/USD price dropped after another set of weak economic numbers from the US. After having a strong performance in May, housing starts and building permits dropped in June. Building permits dropped from 1.49 million in May to 1.44 million in June.

Housing starts dropped by 8% to over 1.43 million in June after expanding by 15.7% in the previous month. Other data shows that the American economy is slowing. Inflation and retail sales dropped in June while the economy added just 209k jobs.

The GBP/USD pair retreated after the weak UK inflation data. On the four-hour chart, the pair moved below the 50-period moving average while the Relative Strength Index (RSI) moved to the oversold level. It retested the important support level at 1.2850, the highest point in June.

The GBP/USD pair has formed a small hammer candle, which is a bullish sign. Therefore, the pair will likely rebound and retest the resistance point at 1.3000. It will then drop and retest the support at 1.2800.

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