The outlook of the GBP/USD is a bit bulish following the breakoutÂ
Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.2300.
- Add a stop-loss at 1.2050.
- Timeline: 1 day.
Bearish view
- Set a sell-stop at 1.2050 and a take-profit at 1.2000.
- Add a stop-loss at 1.2150.
The GBP/USD pair rose to the highest level since July 4th after the latest interest rate decision by the Federal Reserve. It jumped to a high of 1.2125, which is about 3% above the lowest level this month. As it rose, it moved above the important resistance level at 1.2085.
Federal Reserve decision
The GBP/USD pair rose sharply even after the Federal Reserve delivered the latest interest rate decision. In a statement, the bank announced that it was raising interest rates by 0.75% for the second straight month.
The bank has now hiked interest rates by 225 basis points as it tackles the rising inflation in the country. In addition to rate hikes, the bank has ended its quantitative easing policy and embarked on a tightening one. As a result, it has reduced its total balance sheet from over $8.965 trillion to the current $8.89 trillion.
The Fed hopes that these measures will help to lower inflation by reducing the overall consumer spending. It hopes to do this without causing a recession.
Data published this month showed that America’s inflation surged to 9.1% in June, the biggest increase in over 40 years. Still, there are early signs that inflation may have peaked unless something dramatic happens. For example, recent data shows that gasoline prices have moved from this year’s high of $5 to $4.33.
Energy is the biggest contributor to the ongoing inflation surge. At the same time, the prices of key commodities like copper, iron ore, and crude oil has declined sharply in the past few months.
The GBP/USD pair will react to the latest US GDP numbers that will come out later today. Economists expect that the country’s economy expanded by 0.5% in the second quarter. If analysts are accurate, it means that the economy has avoided a technical recession.
GBP/USD forecast
The GBP/USD pair has been forming two important bullish patterns. It formed an inverted head and shoulders pattern and an ascending triangle. The pair then managed to move above the important level at 1.2084, where it has struggled in the past few days. The Relative Strength Index (RSI) moved slightly above the overbought level of 70.
Therefore, the outlook of the GBP/USD is a bit bulish following the breakout that happened on Wednesday. The next key level to watch will be at 1.2300.
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