GBP/USD Forex Signal: Retests Key Support, More Gains Likely
Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.3100.
- Add a stop-loss at 1.2900.
- Timeline: 1-2 days.
Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2900.
- Add a stop-loss at 1.3100.
The GBP/USD price continued its downtrend after the UK published weak economic numbers, pointing to more Bank of England (BoE) interest rate cuts. It dropped to the important psychological point at 1.3000, its lowest swing since August 24.
UK GDP and US inflation data
The GBP/USD pair retreated after the latest UK GDP data. In a statement, the Office of National Statistics (ONS) showed that the British economy stagnated in July, missing the estimated growth of 0.2%. It expanded by 1.2%, missing the median estimate of 1.4%.
The data also showed that the manufacturing production dropped by 1.0% while the industrial production by 0.8%. The two metrics dropped by 1.2% and 1.3%, on a year-on-year basis, also lower than the expected drop of 0.2% and 0.1%, respectively.
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1More data revealed that the trade deficit widened to over £20 billion in July from the previous £18.90 billion while the construction output continued.
Therefore, there are signs that the Bank of England may decide to deliver more interest rate cuts to support the economy. The futures market predicts a 0.25% cut in its meeting next week followed by two more later this year.
The GBP/USD pair continued falling after the US published consumer inflation data. The headline Consumer Price Index (CPI) dropped from 2.9% in July to 2.5% while the core CPI remained unchanged at 3.2%.
Looking ahead, the US will publish the latest Producer Price Index (PPI) report on Thursday. Like the CPI, economists expect the report to show that the PPI fell to 1.8% in August while the core PPI rose slightly to 2.5%.
The US will then publish last week’s initial and continuing jobless claims data. Economists expect the data to reveal that the initial claims fell by 226k from the previous 227k.
GBP/USD technical analysis
The GBP/USD exchange rate has been in a strong downward trend in the past few days. This sell-off continued after the UK published weak GDP data. It retested the important support level at 1.3042, its highest swing in July.
The pair has remained above the 50-day moving average, meaning that the uptrend is still intact. It has also continued to make a series of higher highs and higher lows. Also, it has formed a bullish flag pattern. Therefore, the pair will likely resume the uptrend, with the next point to watch being at 1.3100.
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