The GBP/USD exchange rate is showing signs of technical strength even as it experiences a temporary pullback. The pair retreated to 1.3265 on Thursday morning, down from this week’s high of 1.3360, as traders turned cautious ahead of key economic reports from both the United Kingdom and the United States.
Despite this retreat, chart patterns like the Cup and Handle and Bullish Flag are suggesting a potential upside continuation. Tandexo offers a comprehensive overview of the issue in this publication.
UK and US Economic Data in Focus
The recent weakness in GBP/USD comes as the market awaits a batch of critical economic indicators from the UK. Among the most anticipated is the first-quarter GDP report, which is forecast to show a 0.6% expansion, up from 0.1% in Q4 2024. On an annualized basis, however, GDP is expected to slow to 1.2% from 1.5%, signaling that economic growth remains fragile.
Other key UK data due includes:
- March trade balance report
- Manufacturing production, expected to fall from 0.3% to -0.5%
- Industrial production, forecast to contract by 0.9% after a prior 0.1% increase
These releases are particularly relevant as they follow the Bank of England’s 25 basis point rate cut, the first of the year. Should the upcoming data miss expectations, it may strengthen the case for another rate cut at the next policy meeting.
In the United States, traders are equally cautious ahead of several significant economic indicators. Key among these are:
- Producer Price Index (PPI)
- Retail Sales data
- Philadelphia Fed Manufacturing Index
- Industrial Production figures
In addition, Federal Reserve Chair Jerome Powell is scheduled to speak, marking his first remarks since the Fed’s last policy meeting. Market participants will be closely listening for forward guidance, especially in light of the recent trade détente between the US and China. Powell’s tone could set the stage for the next major move in the GBP/USD pair.
GBP/USD Technical Analysis: Cup and Handle, Bullish Flag Formations
From a technical perspective, the GBP/USD pair appears poised for a bullish continuation, with multiple chart patterns supporting this outlook.
Cup and Handle Pattern
On the daily chart, the currency pair formed a Cup and Handle pattern, which is generally considered a bullish continuation pattern. The upper boundary of the cup was established in April at 1.3435, and the current pullback resembles the classic handle formation that often precedes a breakout. The handle suggests short-term consolidation, giving bulls time to regroup before pushing higher.
Bullish Flag Pattern
A secondary pattern that reinforces the bullish outlook is the Bullish Flag. This consists of a sharp upward move (the flagpole) followed by a sloping rectangular consolidation (the flag). The current price action fits this structure, with the pair oscillating within a narrow channel after a strong upward push from the March lows.
Moving Averages
Further supporting the bullish thesis is the fact that GBP/USD remains above both the 50-day and 100-day Exponential Moving Averages (EMAs). These dynamic support levels often act as a cushion for price and can indicate that momentum still favors the upside.
Key Levels to Watch
- Resistance: The major resistance to watch is the 1.3435 level, which aligns with the upper rim of the cup pattern. A break above this level would confirm the bullish breakout and could trigger an extended rally toward 1.3500 or higher.
- Support: On the downside, the immediate support lies at the lower edge of the bullish flag, around 1.3220. A break below this area could lead to a test of the psychological 1.3100 level before any resumption of the upward trend.
Outlook and Trading Considerations
While short-term sentiment appears cautious due to pending economic reports, the technical indicators point to a potential bullish breakout. The convergence of the Cup and Handle and Bullish Flag formations, alongside the support from EMA levels, suggests that the medium-term trend remains upward.
However, any significant deviation in economic data, especially UK GDP or US inflation figures, could temporarily disrupt this technical setup. Traders should therefore monitor fundamental catalysts closely and remain nimble in adjusting positions.
Conclusion
The GBP/USD pair is at a critical juncture, with economic fundamentals and technical indicators pulling in different directions. While the macro backdrop adds short-term uncertainty, the presence of bullish continuation patterns like the Cup and Handle and Bullish Flag suggests that buyers remain in control, at least for now.
Traders should watch key support and resistance levels closely, while remaining alert to market-moving economic releases and Jerome Powell’s upcoming remarks, which may dictate the next decisive move in the currency pair.
