Bullish view
Buy the GBP/USD pair and set a take-profit at 1.3750.Add a stop-loss at 1.3430.Timeline: 1-2 days.
Bearish view
Sell the GBP/USD pair and set a take-profit at 1.3430.Add a stop-loss at 1.3750.
The GBP/USD exchange rate continued its bullish trend as market participants reacted to the second day of Jerome Powell’s testimony in Congress. It rose for three consecutive days and reached a high of 1.3645, its highest level since January 2022. It has jumped by over 12.60% from its lowest point this year.
US GDP and PCE Data Ahead
The GBP/USD exchange rate rose after Jerome Powell hinted that the bank will start cutting interest rates later this year if inflation falls. Analysts anticipate that the bank will do that possibly in the September meeting after the Fed digests the next few inflation reports.
Two senior Fed officials have concurred with Trump that tariffs will have a modest impact on inflation. In separate statements, Christopher Waller and Michele Bowman said that they would support a rate cut as early as in the July meeting.
The next important catalyst for the GBP/USD exchange rate will be the upcoming US GDP and personal consumption expenditure (PCE) data. Economists expect the third estimate of the GDP data to show that the economy contracted by 0.2% in the first quarter after growing by 2.4% in Q4.
The impact of the GDP figure will be limited since it is the third estimate, and historically, it is usually almost the same as the other two.
The US will publish the initial and continuing jobless claims numbers on Thursday, followed by the closely-watched personal consumption expenditure (PCE) report on Friday.
Traders put more emphasis on the PCE report because it is the Federal Reserve’s favorite inflation gauge. A sign that it dropped in May will raise the possibility of Fed cuts.
GBP/USD Technical Analysis
The daily chart shows that the GBP/USD exchange rate has been in a strong bull run in the past few months. It recently moved above the important resistance level at 1.3435, the upper side of the cup-and-handle pattern.
The pair remains above the 50-day and 100-day Exponential Moving Averages (EMA). Similarly, the Relative Strength Index (RSI) and the Stochastic Oscillator have pointed upwards, pointing to more gains, potentially to 1.3750.
The risk, however, is that the Average Directional Index (ADX) has pointed downwards, a sign that the trend is losing momentum. It has also retested the upper side of the ascending channel, raising the possibility of it falling to the lower side at 1.3430.
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Crispus Nyaga is a financial analyst, coach, and trader with more than 8 years in the industry. He has worked for leading companies like ATFX, easyMarkets, and OctaFx. Further, he has published widely in platforms like SeekingAlpha, Investing Cube, Capital.com, and Invezz. In his free time, he likes watching golf and spending time with his wife and child.
