Bullish view

• Buy the GBP/USD and set a take-profit at 1.2600.
• Add a stop-loss at 1.2400.
• Timeline: 1-2 days.

Bearish view

• Sell the GBP/USD pair and add a take-profit at 1.2435.
• Add a stop-loss at 1.2575.

(Click on image to enlarge)

The GBP/USD pair dipped sharply amid a broader US dollar rebound. It retreated from this week’s high of 1.2565 to 1.2500 as the market braced for key economic events like the ADP jobs report, JOLTs vacancies numbers, ISM manufacturing figures, and the Federal Reserve decision.

US dollar index rebounds

The US dollar index rallied by over 60 basis points and retested the crucial resistance of $106.05, its highest point in two weeks. This rebound happened as American stocks plunged, with the Dow Jones and Nasdaq 100 indices falling by over 1%.

Commodity prices tumbled sharply, with Brent, West Texas Intermediate (WTI) retreating to $85.9 and $82, respectively. Gold plunged to $2,300 while copper and natural gas continued falling.

On the other hand, US bond yields continued rising, with the 10-year and 30-year rose to 4.67% and 4.77%, respectively. This performance happened as traders waited for the upcoming Federal Reserve decision.

The Fed is not expected to cut or hike interest rates in this meeting. However, the officials will provide hints about when the next rate cut will happen since they have adequate data on inflation.

In April, a report showed that the US consumer price index (CPI) rose to 3.5% in March while the core CPI moved to 3.8%. A separate report on Friday revealed that the headline and core PCE report rose to 2.6% and 2.8%.

These numbers mean that inflation has remained stubbornly high. Taken together, prices have risen by over 20% in the past three years. As such, the Fed may point to higher rates for longer as it combats these inflation numbers.

There will be no economic numbers from the UK, with the markets being closed for Labor Day. Still, there are signs that the country’s inflation is falling. A report by the British Retail Consortium showed that prices dropped in March, helped by shoes and clothes.

In the US, the key data to watch on Wednesday will be the upcoming ADP jobs estimate and the manufacturing PMI.

GBP/USD technical analysis

The GBP/USD pair retreated ahead of the upcoming US jobs data and FOMC decision. It retreated to the psychological level of 1.2500 on Wednesday morning. It has remained slightly above the 50-period Exponential Moving Average (EMA).

The Relative Strength Index (RSI) has pointed downwards while the pair is slightly above the Woodie pivot point. Notably, it has formed an inverse head and shoulders pattern, which is a popular reversal sign.

Therefore, the outlook for the pair is bullish. More upside will be confirmed if the price moves above Tuesday’s high of 1.2565. This rebound could happen after the pair retests the Woodie pivot point at 1.2460.

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