GBP/USD breaking through key resistance levels last week is another sign of a possible change in GBP/USD fortunes over the medium term.

Sterling rose to a one-year high against the dollar ahead of Thursday's Bank of England rate decision. The better-than-expected U.S. jobs data for April was overshadowed by a downward revision to March's jobs data, leaving market expectations for a 75 basis point rate cut by the end of the year unchanged.

The Bank of England is widely expected to raise interest rates by 25 basis points to 4.5% as price pressures in the UK remain stubbornly high - headline inflation rose by 10.1% year-on-year in March, higher than expected and not far from the four-decade high of 11.1 hit rate in October. The market is pricing the terminal rate closer to 5% and will be looking for confirmation of this. A hawkish rate hike could push sterling higher.

Note: In the color-coded chart above, the blue candle represents the bullish phase. The red candle represents the bearish phase. Grey candles are used as consolidation phases (in bullish or bearish phases), but sometimes they tend to form at the end of a trend. Note: Candle colors are not predictive - they simply indicate what the current trend is. In fact, the candle color may change in the next column line. Error patterns can occur near the 200-cycle moving average, near support/resistance, and/or in a sideways/volatile market. The author does not guarantee the accuracy of the information. Past performance is not indicative of future performance. Users of the information do so at their own risk.

In addition, UK macro data has exceeded expectations in recent weeks - the UK economic surprise index is around a two-year high, while the US economic surprise index has been falling since late March. In this regard, Wednesday's release of US CPI data (core CPI is expected to retreat from 5.6% in March to 5.5% year-on-year in April) will be crucial after the Federal Reserve raised interest rates last week and indicated that it may pause. The market does not expect the Bank of England to cut interest rates this year and the relative monetary policy outlook is currently favourable for sterling.

On the technical charts, GBP/USD broke decisively above the end-2022 horizontal trend line around 1.2450, triggering a sideways channel break (the lower edge of the channel is near the horizontal trend line 1.1840), suggesting a possible rise towards the form-based width of 1.3000-1.3100.

Last week's rally confirmed the high-top high-bottom sequence since the end of 2022. For more discussion, see "Sterling Price Settings: GBP/USD, EUR/GBP, GBP/JPY," published on March 29. Importantly, it may be unfolding more than just a corrective rally, that is, it opens the door for a reversal of the GBP/USD medium-term downtrend (first highlighted in October - see "GBP/USD Technical Outlook: Forming a medium-term Base?", published October 3).

As the colorful candlestick chart based on trend/momentum indicators shows, the trend for GBP/USD has been bullish in recent months. This is further reinforced by the rise above the upper edge of the Ichimoku channel on the weekly chart. GBP/USD is currently testing the hard 89-week moving average, which was last clearly above in 2021. The subsequent resistance is at the 200-week moving average (currently around 1.2870).

On the downside, the mid-April low of 1.2350 could provide a fairly strong cushion in a pullback. A break below 1.2350 is needed in the near term for the upside pressure to subside.