The GBP/USD pair flattened after the strong US consumer inflation data.
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- Sell the GBP/USD pair and set a take-profit at 1.2400.
- Add a stop-loss at 1.2560.
- Timeline: 1-2 days.
- Set a buy-stop at 1.2520 and a take-profit at 1.2620.
- Add a stop-loss at 1.2420.
The GBP/USD was flat on Thursday after the relatively weak UK GDP data and strong US consumer inflation numbers. The pair was trading at 1.2500, a few points above this week’s low of 1.2442.
The UK economy is not doing well. Consumer inflation remains above 6%, one of the highest rate in the developed world. At the same time, data published on Wednesday showed that the economy contracted in July. Its GDP dropped by 0.5% after expanding by 0.5% in the previous month.
Additional numbers showed that the country’s industrial production dropped by 0.7%, leading to a YoY increase of 0.4%. The two figures were worse than the expected -0.6% and 0.5%.
The country’s construction output also retreated by 0.5% in July. Additional data published a few weeks ago revealed that the house price index (HPI) dropped at the fastest pace in years.
Therefore, the challenge for the Bank of England (BoE) is how to deal with this stagflation. In a recent statement, Andrew Bailey, the head of the bank said that there was no need for more rate hikes.
The GBP/USD pair flattened after the strong US consumer inflation data. According to the headline Consumer Price Index (CPI) rose by 3.7% in August as the core CPI dropped to 4.3%. These numbers mean that the Fed could decide to hike rates by 0.25% in next week’s meeting.
The next key data that will have an impact on the GBP/USD pair will be the latest US retail sales and PPI numbers. Economists polled by Reuters expect the data to show that the headline PPI rose from 0.8% to 1.2% in August. The US will also publish the latest US retail sales numbers.
The GBP/USD pair has been in a downward trend since July 14 when it peaked at 1.3132. Since then, the pair has formed a descending channel shown in red. It has also moved slightly above the 78.6% Fibonacci Retracement level. The pair also dropped below the 25-period and 50-period moving averages.
It has also formed what looks like a small double-bottom pattern. Therefore, more downside will be confirmed if the pair moves below the support at 1.2442. A move below that level will see it drop to the psychological level of 1.2400.
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