+20% from the low — a great moment for a GBPUSD correction

14 December 2022 214
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The GBPUSD pair continues to climb up, offsetting this year’s losses. It rose by almost 20% from the historical low of September 26 at the level of 1.035 to the current moment. The slope of the uptrend line is slightly concerning, as the ascent is extremely rapid and can’t be maintained for a long time. We might see a pullback of GBPUSD in the near future.

The weakening of the dollar favorably affected all other world currencies, and the pound is no exception. A decline in inflation in the U.S., which gains more sustainability, makes the rate of return on assets less attractive, as the Fed’s tightening cycle is closer to its end. We might get confirmation of it as early as today, when the results of the Fed’s last meeting this year will be announced.

A day later, on Thursday, the Bank of England (BoE) will make its decision on interest rates. And there is much more uncertainty with the British regulator’s policy compared to its American counterparts. Possible outcomes of the meeting range from +0.25% to +0.75% on the key rate. Even though relatively good GDP data was released on Monday, some BoE’s representatives are clearly cautious of tightening credit conditions beyond current levels.

And today's inflation data may tip the scales to the "dovish" side of the British regulator. Price growth slowed down from 11.1% to 10.7%, better than the forecast of 10.9%. In recent months, the decline in inflation in the U.S. played in favor of the GBPUSD growth, but now the decrease in the growth rate of prices is fixed in the UK. It might lead to at least a local pound’s correction.

The level of 1.22 looks as an interesting target for betting on GBPUSD decline. The achievement of this level will ensure the reduction of overbought, but at the same time won’t break the uptrend. To increase the reliability of the deal, the results of the Fed’s and BoE’s meetings might be awaited.

Following trading strategies can be offered:

Sell GBPUSD not above the level of 1.24. Take profit – 1.22. Stop loss – 1.244.

Traders may also use a Trailing stop instead of a fixed Stop loss at their discretion.

This content is for informational purposes only and is not intended to be investing advice.

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