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Tuesday, 07 February 2023
Rising Wedge Points to Bearish Breakout in the GBP/USD Currency Pair

Rising Wedge Points to Bearish Breakout in the GBP/USD Currency Pair


The pair is likely to experience a bearish breakout in the coming days, even though the Relative Strength Index is rising.

Bearish View

  • Sell the GBP/USD pair and set a take-profit at 1.3050.
  • Add a stop-loss at 1.3250.
  • Timeline: 1-2 days.

Bullish View

  • 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 recovered in recent days as investors react to the Bank of England’s (BOE) and Federal Reserve’s interest rate decisions. It is currently trading at 1.3178, somewhat higher than last week’s low of 1.3000.

BOE and Fed Decisions

Last week, the Federal Reserve and the Bank of England were in the spotlight as they convened and ended their monetary policy meetings. The market’s new normal of increased interest rates was reinforced during the course of the two sessions.

By stopping quantitative easing and raising interest rates by 0.25 per cent, the Federal Reserve opted to terminate its cheap money programme. It was the first-rate boost since the bank lifted rates four times in 2018. The dot plot of the bank also revealed that officials expect six more rate hikes this year. Some officials implied in later statements that the next rate hike could be 0.50 per cent. If this occurs, it will be the first time in years that the bank has lifted interest rates by 0.50 per cent. In the meanwhile, the BOE held its monthly meeting. The bank decided to raise the rate by 0.25 per cent, bringing the headline rate to 0.75 per cent. It has raised rates three times in a row, and it has signalled that more hikes are on the way.

The two banks agreed that the labour market is tightening and that inflation will continue to rise. The two banks warned that rate hikes will not assist to decrease inflation for the time being due to supply chain issues.

Jerome Powell will deliver his first comments since the bank reached that decision later on Monday. He’ll most likely be more forthcoming regarding the economy. Meanwhile, the UK will release vital data on inflation and retail sales later this week.

[(][)]BEFORE IMAGE 1[(][)]

The GBP/USD pair has been trending upwards on the four-hour chart in recent days. It’s currently trading at 1.3178, above the 25-day and 50-day moving averages. A rising wedge pattern has also formed, which is normally a negative sign. In addition, the pair has established what appears to be a bearish flag pattern.

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