GBP/USD Forex Signal: Broadening Wedge Points to a Bullish Breakout
Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.3200.
- Add a stop-loss at 1.3045.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 1.3120 and a take-profit at 1.3045.
- Add a stop-loss at 1.3200.
The GBP/USD exchange rate wavered on Monday morning ahead of a busy week in which the Federal Reserve and the Bank of England (BoE) will start to cut interest rates. The pair was trading at 1.3125, a few pips above last week’s low of 1.3000.
Fed and Bank of England ahead
This will be a busy week in the forex market as central banks from around the world make their monetary policy verdicts.
The Federal Reserve will conclude its two-day interest rate decision on Wednesday and deliver its first interest rate cut. What is unclear, however, is the size of the cut, with some analysts expecting the bank to slash it by 50 basis points and others 25 bps. The CME Fed Watch Tool is divided equally on the two.
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1The Fed will cut rates because inflation is on a path toward the 2% target while the unemployment rate has moved in the opposite direction. Recent data showed that the headline Consumer Price Index (CPI) dropped to a two-year low of 2.5% while the unemployment rate remained at 4.2%.
Across the pond, the Bank of England (BoE) will conclude its two-day meeting on Thursday. Most economists expect the BoE to maintain rates unchanged since it has already slashed them by 0.25%.
In a note, economists at Goldman Sachs noted that the bank would start consecutive rate cuts in its November meeting since the economy is slowing. Data released last week showed that the economy slowed in July as the manufacturing and industrial manufacturing production retreated.
A key concern for the BoE is that the UK’s wage growth has been stronger than expected, which could make inflation stickier for longer.
GBP/USD technical analysis
The GBP/USD exchange rate has pulled back modestly after peaking at 1.3267 on August 28. It dropped and retested the important support level at 1.3045, its highest swing on July 17. A break and retest pattern is one of the most popular signs of continuation.
The pair has remained above the 50-day moving average. It has also formed a broadening wedge chart pattern, a popular bullish reversal sign. Additionally, it has constantly formed a series of higher highs and higher lows.
Therefore, the GBP/USD pair will likely continue rising as bulls target the next key resistance point at 1.3200. A break above that level will see it rise to the next resistance point at 1.3267, its highest level last month.
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