GBP/USD just broke out to start the new week! Will that draw in the bulls for a longer-term move higher? Or is there a fakeout lurking ahead?
GBP/USD Upside Breakout?
This week, I’m checking out Cable as it looks like traders are already making this pair one to watch early in the new week.
We just saw a pop higher, likely a reaction to this weekend’s Scottish parliamentary elections where pro-independence parties took majority, and based on that reaction, if we see more headlines supporting speculation Scotland could leave the U.K., this rally may have legs. But we’ve also got to be aware of the upcoming U.K. GDP data on May 12th that could bring Sterling back to earth.
Outside of the U.K., we’ve got U.S. inflation readings and retail sales data that may get get the Greenback moving. The Federal Reserve says this data is likely to be “transitory” due to base effects, but if we see reads far outside of the expected 0.3% core CPI read, USD bulls may temporarily pump the Greenback higher.
So, with top tier events ahead that could turn the market around quickly, we’ll sit on the sidelines on GBP/USD for now. With the short-term trend in favor of the bulls for now, we’ll be looking for a scenario to favor that position, likely a lower-than-expected read on U.S. CPI data and a better-than-expected read of -1.6% on U.K. GDP.
That scenario has good odds to take GBP/USD higher, and if the market retested the broken resistance area just under the 1.4000, then that could attract buyers into the market if bullish reversal patterns appear.
Going long at market after the news releases makes sense as well if you’re in for a longer-term position, but if you’re looking for a quick trade, buying above 1.4100 has a low potential return-on-risk with the previous major swing highs being very close around the 1.4200 – 1.4400 range.
What do you guys think? Will GBP/USD bulls continue to dominate? What are your expectations of the Greenback around the inflation data?
Let me know in the comments below, and as always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.
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