Yesterday’s UK CPI data drove GBP/USD lower as pace of inflation increased from 2.7% to 2.8% Y/Y. Inflation has been above Bank of England’s target since Nov 2009, and this increase in pace suggest that inflation is unlikely to fall back below target anytime soon. However, the decline was not able to drive prices below the Asian low of 1.527, and price quickly recovered, back above 1.53, and eventually pushed towards 1.538 resistance during US trading hours.
Currently price has bounced off 1.538 and is finding support along 1.534. Stochastic readings suggest that price may continue lower with readings still firmly pointing lower. However, bears may find support bands between 1.531 – 1.534, and 1.528 – 1.53 even if price break lower from here. Similarly, should price bounce higher from 1.534, 1.538 will provide significant resistance once again, with consolidation 1.538 – 1.541 providing yet more resistance should prices move higher.
Price on Daily Chart is overall bearish, but bulls have made significant headway in current retracement. Price have cleared the 1.52 ceiling that has been in play since March, and the break allowed 1.54 to be tested, though a full bullish bias may only be established if price gain a foothold above 1.58 round number – confluence with 61.8% Fib and ceiling of early Feb + swing low back in Nov ’12. Stochastic readings appears to be topping, which would enhance the likelihood of 1.54 holding. However readings may be forming an interim trough within Overbought region, which suggest that price may still find some bullishness in it – though the ability to break 1.54 is still in doubt from a technical view point.
With BOE Minutes and Employment data coming later today, we are primed to see volatility in the short term and potentially directional clarity in the longer term. Depending on the results, we could see GBP/USD trading lower, which will extend the bounce from 1.54 towards 1.48. Alternatively, price may rally towards 1.54, which will allow traders to understand better current underlying sentiment – If bulls are unable to break above 1.54 despite strong bullish data/minutes, it is likely that overall sentiment is still bearish which may result in a correction soon. Similarly, should dismal results not able to push price below 1.52, the underlying bullish sentiment maybe strong which may suggest a retest towards 1.54 could happen again.
It is also entirely likely that both news simply result in muted response. Nonetheless traders may be able to utilize the same concept on the Short-term chart especially since there are numerous support/resistance zones around current price levels that can provide guidance.
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.