GBP/USD forms a dead cat bounce ahead of UK GDP data

on Apr 12, 2021
  • The GBP/USD has formed an inverted cup and handle pattern.
  • It rose today as the UK government started to reopen the economy.
  • The pair may retreat ahead of UK GDP and US CPI data.

The GBP/USD bounced back on Monday as the market remained optimistic about the overall recovery of the UK economy. It rose to 1.3760, which was 0.68% above the lowest level last week.

British pound
GBP/USD price action

UK reopening to boost the economy

After months of lockdown, the UK started to reopen today. The government started to allow most businesses like restaurants, gyms, and pubs to operate. This is the first stage of reopening, with the entire economy set to start reopening on June 21.

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This progress is mostly because of the government’s vaccination efforts. More than 30 million Britons have already been vaccinated and the government expects to conclude the process later this year. 

This makes it one of the most successful stories considering that the US has vaccinated less than 35% of the population. The EU has vaccinated less than 15% of its population and it expects to reach 50% in July.

Recent data from the UK shows that the economy has weathered the storm better than most countries. Its unemployment rate is at 5.0%, while the US and EU is at 6.0% and 7.6%, respectively. Similarly, data released last week showed that the manufacturing and services PMIs were strong in March.

The GBP/USD is also falling today because of the overall weak US dollar. The dollar index has dropped by 0.12% as forex traders eye the latest US inflation numbers scheduled for tomorrow. Analysts expect the data to show that the headline consumer price index (CPI) rose to 2.5% in March. While this is above the Fed’s 2.0% target, analysts believe that it will moderate as the impact of the stimulus starts fading.

The GBP/USD will also react to the latest UK GDP, industrial, and manufacturing production numbers scheduled for tomorrow.

GBP/USD forecast

GBP/USD technical chart

On the four-hour chart, we see that the GBP/USD pair dropped to an important support at 1.3671 on Friday last week. This was the lowest level it was since March 25. Today, it bounced back above this support level and moved above the 25-day and 15-day EMA. In the same period, the Relative Strength Index (RSI) moved from the oversold level of 30 to 43. This price action is part of the handle part of the inverted cup and handle pattern. Therefore, there is a possibility that the GBP/USD will resume the downward trend.This makes today’s jump a dead cat bounce.

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