GBP/USD Forex Signal: Bullish Flag Points to a Bullish Breakout

Bullish view

  • Buy the GBP/USD pair and set a take-profit at 1.2650.
  • Add a stop-loss at 1.2450.
  • Timeline: 1-2 days.

Bearish view

  • Set a sell-stop at 1.2545 and a take-profit at 1.2450.
  • Add a stop-loss at 1.2650.

The GBP/USD pair wavered after the mixed UK jobs and US Consumer Price Index (CPI) data. It was trading at 1.2557 on Wednesday as traders position for the upcoming Federal Reserve and Bank of England (BoE) interest rate decisions. It has fallen by over 1.40% below the highest point this month.

Fed and BoE decisions

The GBP/USD pair reacted mildly to the important economic numbers from the US and UK. On Tuesday, data by the Office of National Statistics (ONS) showed that the unemployment rate remained unchanged at 4.2% in October.

The closely watched wages numbers showed that earnings dropped from 8.0% in September to 7.2% in October. That decline was worse than the median estimate of 7.7%. Without bonuses, wages dropped to 7.3%.

The ONS will publish the latest GDP data on Wednesday. Economists expect the data to show that the economy expanded by 0.6% in October after growing by 1.3% in September. The other important data to watch will manufacturing and industrial production numbers.

The GBP/USD pair also reacted mildly to the US Consumer Price Index (CPI) data. According to the Bureau of Labor Statistics, the headline inflation dropped from 3.2% in October to 3.1% in November. Core inflation remained unchanged at 4.0%, double the Fed target of 2.0%.

The important news to watch will be the upcoming Federal Reserve interest rate decision. Economists expect the bank to leave rates unchanged between 5.25% and 5.50%. Because of the strong non-farm payrolls (NFP) data, the Fed will likely dampen the mood among market participants. Jerome Powell  will likely warn that rates will remain at a restrictive level for a while.

The other key event will be the Bank of England (BoE) interest rate decision. Like the Fed, the bank will also leave rates unchanged and warn that they will remain higher for longer.

GBP/USD technical analysis

The GBP/USD pair has been in a downtrend in the past few days. It has moved slightly below the 50% Fibonacci Retracement point. The pair has dropped below the 50-period moving average.

It has also formed a descending channel or a bullish flag pattern, which is shown in red. In most cases, this pattern is one of the most bullish signs in the market. Therefore, the outlook for the pair is positive. This view will be confirmed if it moves above the upper side of the descending channel.

Leave a Reply

Your email address will not be published. Required fields are marked *