While the Relative Strength Index is rising, there is a likelihood that the pair will have a bearish breakout in the coming days.
Sell the GBP/USD pair and set a take-profit at 1.3050.Add a stop-loss at 1.3250.Timeline: 1-2 days.
Set a buy-stop at 1.3200 and a take-profit at 1.3250.Add a stop-loss at 1.3150.
The GBP/USD pair has crawled back in the past few days as investors react to the interest rate decisions by the Bank of England (BOE) and the Federal Reserve. It is trading at 1.3178, which is slightly above last week’s low of 1.3000.
BOE and Fed Decisions
The Fed and the BOE were in the spotlight last week as they held and concluded their monetary policy meetings. The two sessions confirmed that the market was in a new normal of higher interest rates.
On Wednesday, the Federal Reserve decided to abandon its easy money policy by ending its quantitative easing policy and hiking interest rate by 0.25%. It was the first time the bank has raised rates since 2018 when it hiked four times.
The bank’s dot plot also signaled that officials were looking forward to six more rate hikes this year. In later statements, some officials hinted that the next rate hike could be 0.50%. If this happens, it will be the first time that the bank has raised rates by 0.50% in years.
Meanwhile, the BOE also concluded its monthly meeting. The bank decided to deliver another 0.25% rate hike, which brought the headline rate to 0.75%. It has risen rates in the past three straight meetings and it hinted that more rate hikes are coming.
A common theme between the two banks was that the labor market is tightening while inflation will continue rising. Because of the supply chain challenges, the two banks warned that rate hikes will not help to lower inflation for now.
Later on Monday, Jerome Powell will deliver his first statement since the bank made that decision. He will likely provide more clarity about the economy. Meanwhile, later this week, the UK will publish important data on inflation and retail sales.
The four-hour chart shows that the GBP/USD pair has tilted upwards in the past few days. It is trading at 1.3178, which is above the 25-day and 50-day moving averages. It has also formed a rising wedge pattern, which is usually a bearish sign. The pair has also formed what looks like a bearish flag pattern.
Therefore, while the Relative Strength Index is rising, there is a likelihood that the pair will have a bearish breakout in the coming days. If this happens, the next key support will be at 1.300.