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The most important data to watch will be the upcoming US consumer inflation data.
Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2800.
- Add a stop-loss at 1.3050.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.2970 and a take-profit at 1.3050.
- Add a stop-loss at 1.2900.
The GBP/USD price soared to the highest level since April last year as bets that the Bank of England (BoE) will continue with its rate increases. Sterling rose to a high of 1.2912, bringing the year-to-date gains to over 7%.
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The GBP/USD pair jumped after the US published strong jobs numbers on Tuesday. The data revealed that the country’s wage growth continued in the three months to May. Annual wages jumped by 6.9%, up from the previous 6.7%. Regular pay jumped by 7.3% in the same period while the economy added over 102k jobs.
These numbers mean that the Bank of England will continue hiking interest rates in the coming months. Some analysts see rates ending the year at about 7%. Further evidence of this view is the fact that the two-year mortgage rate jumped to the highest point since 2008. Gilt yields have also risen to the highest point since the mini-budget crisis.
The BoE will release the financial stability report and minutes of the recent financial policy committee (FPC). While these documents are important, their impact on the GBP/USD pair will be limited.
The most important data to watch will be the upcoming US consumer inflation data. The general view among traders and economists is that the country’s inflation dropped in June. Economists polled by Reuters expect that annual inflation fell from 4.0% to 3.1% while core CPI dropped from 5.30% to 5.0% in June.
A weaker-than-expected figure will be positive for the GBP/USD pair because of its impact on the Fed’s decision. On the other hand, if the number is hotter than expected, it will see a hawkish tone spread in the market.
The GBP/USD exchange rate has been in a slow bullish trend in the past few months. On the 1D chart, the pair has formed a rising wedge pattern. It is now nearing the upper side of this wedge pattern.
The Stochastic Oscillator has moved to the extremely overbought level while volume has started moving downwards. Most importantly, the pair is nearing the psychological important level of 1.3000.
Therefore, the pair will likely retreat in the next few days as bulls start taking profits. This retreat could see it drop to the support at 1.2595.
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