GBP/USD forms cup and handle ahead of UK inflation data

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his wife, son,… read more.
on May 18, 2021
  • The GBP/USD pair has formed a cup and handle pattern on the daily chart.
  • The pair rose today after the strong UK employment data.
  • The UK unemployment rate dropped to 4.8% in March.

The GBP/USD price rallied after the relatively upbeat UK jobs numbers and the weaker US dollar. The pair rose to a high of 1.4200, the highest level since February 24 this year. 

GBP/USD
GBP/USD chart

UK labour market steady

The UK labour market was relatively resilient in March as the government continued to reopen the economy. According to the Office of National Statistics (ONS), the economy added more than 97,000 in March while the number of job openings increased by 13%. 

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At the same time, the unemployment rate surprised the market after it dropped to 4.8% from the previous 4.9%. Analysts polled by Reuters were expecting the jobless rate to remain unchanged at 4.9%. 

The UK unemployment rate is significantly better than that of other countries like the United States, Germany, and the UK. However, it has come at a great cost since the government is supporting the economy by using the furlough program. In a note, analysts at Bloomberg said:

“The jobless rate will fall in the near term as the demand created by reopening the economy creates new jobs, while the furlough program protects those who might otherwise have been laid off.”

The GBP/USD will later react to the upcoming UK inflation data that will come out tomorrow. Economists expect the data to show that the overall consumer price index (CPI) rose by 0.6% in April, leading to a year-on-year gain of 1.4%. 

At the same time, they expect that the core CPI, which strips the volatile food and energy prices, will rise by 0.4% and at a year-on-year rate of 1.3%. While these numbers will be below the Bank of England (BOE) target, they will be moving in the right direction. 

The GBP/USD will also react to the upcoming US housing starts and building permits numbers that will come out later today.

GBP/USD forecast

GBP/USD technical chart

The GBP/USD pair rose to 1.4200, which is substantially higher than last month’s low of 1.3677. On the daily char, w see that the price is along the upper line of the Bollinger Bands, which is usually a bullish sign. The pair also seems to be forming a cup and handle pattern, which is a sign of a bullish continuation. The histogram of the MACD have moved above the neutral line while the two lines have risen. Therefore, the pair may keep rising as bulls target the important resistance at 1.4288.

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