Bearish view

• Sell the GBP/USD pair and set a take-profit at 1.2565.
• Add a stop-loss at 1.2830.
• Timeline: 1-3 days.

Bullish view

• Set a buy-stop at 1.2700 and a take-profit at 1.2800.
• Add a stop-loss at 1.2565.

(Click on image to enlarge)

The GBP/USD pair retreated on Monday morning ahead of key events from the UK. It also slumped ahead of key economic data from the US and Federal Reserve speakers. It moved to a low of 1.2685, down from last week’s high of 1.2865.

Bank of England's decision ahead

The GBP/USD exchange rate will be in the spotlight as the UK publishes its latest consumer and producer inflation data. Economists polled by Reuters expect the data to reveal that the country’s inflation continued falling in May.

The median estimate is that the headline CPI dropped from 2.3% in April to 2.0% in May while the core CPI moved from 3.9% to 3.5%. If analysts are correct, it will be the first month that inflation has moved to the BoE’s target of 2.0%.

These numbers will come on the same day that the BoE will be kicking off its monetary policy meeting. Economists predict that the BoE will leave interest rates unchanged at 5.25% and hint that it will deliver two cuts later this year.

The other important data to watch will be the UK retail sales numbers scheduled for Friday. Economists expect the data to show that sales rebounded by 1.6% in May after crashing by 2.3% in April.

The GBP/USD pair also slumped after last week’s hawkish Federal Reserve decision. In it, the bank left rates unchanged and pointed to just one cut this year. The Fed is still concern that inflation is not falling fast enough.

In a statement on Monday, Neel Kashkari of the Minneapolis Fed, said that the bank was in a good position to take time and watch incoming data before starting to cut rates. He wants to see more evidence that inflation was falling to the 2% target. As such, Kashkari believes that if there is a rate cut, it will happen either in November or December.

GBP/USD technical analysis

The GBP/USD pair slumped hard after soaring to a high of 1.2830 last week. It dropped to 1.2685 on Monday, which is the Woodie pivot point. The pair has also dropped slightly below the 25-day Exponential Moving Average (EMA).

At the same time, the two lines of the MACD have formed a bearish crossover while the Relative Strength Index (RSI) has moved below the neutral point. The pair is also forming the right shoulder of the inverse head and shoulders (H&S) pattern.

Therefore, it will likely drop to the key support at 1.2565 and then resume the bullish trend. This price coincides with the first support of the Woodie pivot point and the left shoulder.

More By This Author: