GBPUSD – Cable Turns Bearish on US CPI Surprise

Cable looked on course to test last week’s highs following a strong rally on Thursday that saw it move from 1.5525 to 1.57 before consolidating. That appears to have all changed now following a better than expected US core CPI reading that prompted a surge in the dollar and therefore sharp reversal in this pair.

As you can see on the chart below, the pair had formed an almost perfect flag – a bullish continuation pattern – following the rally. Prior to the economic release, the pair had the additional support of the 233-hour simple moving average, making another rally higher look even more likely.

eurusd 1hr

The only thing that was going to change this – and probably the thing that traders were waiting for before they moved – was a stronger inflation reading which is exactly what we got. It wasn’t long before the dollar had smashed through numerous technical support levels before settling around 1.55.

How it reacts at this level will be key now but I think it’s going to be very difficult for the bulls to protect it. Already the trend line – 13 April lows – has been broken, although we have yet to see a close on the 4-hour chart.

It also has to overcome the 1.55 support – which has been a key level on numerous occasions – and the 89-period SMA. If all of these can be broken, I would expect to see significant weakness and a very serious test of 1.5450 – 19 May lows.

eurusd 4hr

There is currently a lot of indecision among OANDA traders with there being a perfect 50 50 split between long and shorts.

Open Position Ratio

A look at the recent trend suggests clients are keen to get long in recent days bur perhaps today’s data has triggered a slight change of heart.

Historical Position Ratios

The above position ratio tools and many others can be found in OANDA Forex labs.

N.B. THERE ARE MANY CENTRAL BANKERS SPEAKING AT EVENTS TODAY INCLUDING BANK OF ENGLAND GOVERNOR MARK CARNEY AND FEDERAL RESERVE CHAIR JANET YELLEN. DURING THESE THE MARKETS CAN BE VERY VOLATILE AND TECHNICAL ANALYSIS MAY BE LESS EFFECTIVE.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.