Fundamental analysis of GBP/USD

According to the latest GDP report, the U.K. economy showed modest growth, potentially leading to an interest rate adjustment by the Bank of England (BoE). The April GDP report indicated growth of 0.2%, reversing the 0.3% contraction of the previous month and matching economists' expectations. On an annualized basis, the economy grew 0.5%, slightly less than the 0.6% expected.

The Office of National Statistics reported a 0.3% recovery in the services sector, countering an earlier 0.5% decline. However, output declined 0.3%, mostly due to manufacturing, in contrast to the 0.7% growth seen in March. Interestingly, the U.K. trade deficit narrowed in April, contrary to expectations of an increase.

Despite moderate GDP growth, the Bank of England may take a more aggressive stance in managing wage growth and inflation. However, the application of aggressive strategies runs the risk of plunging the UK into recession.

Looking ahead, if the U.S. wholesale inflation numbers are below expectations, it could ease the pressure on the Federal Reserve to raise interest rates. The U.S. Consumer Price Index (CPI) report has affected market sentiment on the Fed's interest rate decisions, with the likelihood of a rate hike in June significantly diminished.

GBP/USD remained relatively stable amid mixed economic data from UK and cautious market sentiment ahead of the Federal Open Market Committee (FOMC) meeting on monetary policy. Despite the decline in industrial production, GBP/USD continues to attract investors' attention due to positive UK employment and inflation data. In addition, disappointing U.S. inflation data provides support for GBP/USD buyers. Concerns ahead of the Fed decision appear to be limiting the reaction of GBP/USD traders to the UK economic data. However, Fed Chairman Jerome Powell's optimistic tone may stimulate market activity.

Trading scenarios:

Support levels: 1.25750, 1.25330, 1.24670; 
Resistance levels: 1.27420 1.26950, 1.26520.

Main scenario: Given the positive UK employment and inflation data and the expected dovish stance of the Fed, we could see the GBP/USD pair testing the resistance level at 1.27420. The recommended opening price is 1.2600, take profit 1.27420. Given the potential market volatility due to the Fed decision, a stop loss should be placed at 1.25750, which is slightly below the first support level.

An alternative scenario: if the Fed surprises the market with a hawkish stance, it could strengthen the U.S. dollar, which could lead to a downward movement of the GBP/USD pair. In this case, traders can consider a sell position around 1.2600, take profit 1.25330, stop loss 1.26520.

However, traders should proceed with caution as Awesome Oscillator (AO) and Accelerator Oscillator (AC) are in the gray zone, indicating divergence, which usually is not a strong signal to open a position. It is always important to closely monitor market events and adjust strategies as needed.