GBP/USD Signal 25/08: Inverse Head-And-Shoulders (Chart)

(MENAFN- Daily Forex) Bullish view

• Buy the GBP/USD pair and set a take-profit at 1.3700.
• Add a stop-loss at 1.3400.
• Timeline: 1-2 days.

Bearish view

• Sell the GBP/USD pair and set a take-profit at 1.3400.
• Add a stop-loss at 1.3700.

The GBP/USD exchange rate rebounded on Friday after the relatively dovish statement from Jerome Powell at the Jackson Hole Symposium in Wyoming. It jumped to 1.3548 after bottoming at 3387 Statement Points to Fed and BoE Divergence

The GBP/USD exchange rate rose after the much anticipated speech by Powell, in which he pivoted his stance on interest rates. In his speech, he noted that the central bank was now more concerned about the labor market, which has deteriorated significantly in the past few months because of the uncertainties about Donald Trump tariffs.

The most recent economic data revealed that the economy created just 73,000 jobs in July, a figure that will likely be revised downwards as the BLS has done before. The unemployment rate rose to 4.2%, while wage growth remained constrained.

Powell now believes that safeguarding the job market will be more important for now than fighting inflation, which has held steadily in the past few months. Recent data showed that the headline Consumer Price Index rose to 2.7% in July, while the core figure that excludes the volatile food and energy prices rose to 3.1%.

It is still unclear whether monetary policy will help to lower inflation because it has been caused by Donald Trump's tariffs, which have risen in the past few months. The average US tariff rate is about 18%, higher than most developed countries.

A Fed rate cut will come at a time when most analysts expect the Bank of England to maintain interest rates intact following the recent inflation data. A report by the Office of National Statistics (ONS) showed that that the core and the headline consumer inflation data rose to 3.8% in July, while the retail price index shot up to 4.8%.

EURUSD Chart by TradingViewGBP/USD Technical Analysis

The daily timeframe chart shows that the GBP/USD exchange rate rebounded to a high of 1.3540 after the Powell speech. It has formed a bullish engulfing chart pattern, which happens when a positive candle covers a small bullish one fully.

The pair has also formed an inverse head and shoulders pattern, another highly bullish reversal sign. It also remains above the 50-day and 25-day Exponential Moving Average (EMA).

Therefore, the pair will likely continue rising, a move that will be confirmed if it moves above the neckline at 1.3587. If this happens, the next key level to watch will be at 1.3700.

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