Traders began to gradually buy GBPUSD on sharp dip

The GBPUSD currency pair ended last week with the strongest collapse for a month and a half. For 2 trading sessions, quotes lost 1.5% and fell to an important support level of 1.26. At these marks, buyers became active, and now one can see a rebound in price upward. It is unlikely that the quotes' recovery will be as fast as the downward movement, but its potential remains significant. The nearest targets for the bulls may be the marks 1.27 and 1.272.

A sharp dip in the pound-dollar ratio occurred amid the results of the Bank of England (BoE) meeting. This time, none of the officials voted in favor of raising rates, and the head of the BoE Andrew Bailey confirmed the validity of the expectations of a rapid easing of monetary policy. Market participants now predict the first rate cut by the Bank of England not in August, but in June, along with the Fed and the ECB. However, these estimates may be too optimistic.

The latest statistics suggests that the UK economy is becoming more stable, giving the BoE a chance to postpone rate cuts. Retail sales in February remained at the same level as in January, although analysts expected a 0.4% decline. Alex Kerr from Capital Economics forecasts further recovery in real consumer spending during this year. In such conditions, the Bank of England is not required to make an urgent policy reversal.

Preliminary data for March supports this view. Yesterday, the Confederation of British Industry (CBI) reported the first rise in sales in 10 months. Martin Sartorius, chief economist at the CBI, said that the bottom has been reached, after which economic activity among households and businesses begins to revive. An important factor is households' assessment of their financial situation. It became positive for the first time in more than 2 years.

After keeping the level of 1.26 under control of the pound buyers, GBPUSD upward bounce is the main scenario for the next few days. 

Short-term upside targets are at the levels of 1.27 and 1.272.

The following trading strategy may be offered:

Buy GBPUSD at the current price. Take profit 1 – 1.27. Take profit 2 – 1.272. Stop-loss – 1.26.

Also, traders can use a Trailing Stop instead of a fixed Stop-loss at their discretion.