GBP/USD Standstill at $1.3560, Can US Inflation Figures Trigger Price Action?
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- GBP/USD is tossing between a narrow trading range of 1.3592 – 1.3532 level ahead of the US inflation figures.
- Rising tensions between the EU and the UK weighed on both currencies, particularly the British Pound.
- GBP/USD pair has completed a 61.8% Fibonacci retracement at the 1.3592 level
On Wednesday, the GBP/USD pair is trading with a neutral bias at the 1.3561 level. It’s tossing between a narrow trading range of 1.3592 – 1.3532 level ahead of the US inflation figures. The day before, GBP/USD was closed at $1.3554 after hitting a high of $1.3609 and a low of $1.3523.
The GBP/USD reversed its course on Tuesday and dropped for the session despite the weakness in the US dollar. The currency pair GBP/USD surged during the first half of the day but faced pressure on its prices and dropped for the day to lose all of its daily gains.
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Tensions over Northern Ireland weigh on GBP/USD.
The British pound was under pressure on Tuesday amid Brexit jitters. The tensions over Northern Ireland have forced the European Union to prepare a package of retaliatory measures. That’s in case the UK decides to suspend parts of the post-Brexit trade accord.
This was anticipated to be the end of it, but rising tensions between the EU and the UK weighed on both currencies, particularly the British Pound, contributing to the GBP/USD pair’s loss.
The United Kingdom, the world’s fifth-largest economy, has been grappling with an acute shortage of critical workers. Alongside, they are facing massive supply chain troubles, although economic growth projections have been improving with time.
Weakness in the US dollar underpins the GBP/USD.
On the other hand, the US dollar was also low as the DXY dropped to 93.88 levels on the day. It ultimately should have supported the GBP/USD currency pair, but the pair remained flat throughout the day due to the weakness of both currencies involved in the pair.
Furthermore, the cautious market mood ahead of the US Consumer Price Index, which is scheduled for Wednesday, also kept the currency pair GBP/USD consolidated for the day.
A quick economic outlook
- On the data front, at 05:01 GMT, the BRC Retail Sales Monitor from Britain dropped to -0.1% against the forecasted 1.1%.
- On the US side, at 16:00 GMT, the NFIB Small Business Index decreased to 98.2 against the anticipated 99.4. It weighed on the US dollar, which caused a further loss in GBP/USD.
- At 18:30 GMT, the PPI remained flat with expectations of 0.6%.
- The Core PPI fell to 0.4% instead of the expected 0.5%, putting pressure on the US dollar.
Earlier in the day, comments from the Bank of England’s Governor, Andrew Bailey, also failed to drive significant movement in GBP despite the absence of a macroeconomic data release. Bailey largely reiterated that the central bank would act and hike rates if evidence of higher inflation expectations drives up wages.
US Inflation figures under the spotlight
Last Monday, the US Federal Reserve recognized that inflation remained higher than expected and would likely remain thus for some time.
Many economists would claim that they have arrived late to the party. However, the fact that the Fed finally relented may imply that tomorrow’s CPI shift data may have a less instant effect on the markets.
The idea is that because the Fed expects rising inflation, the Fed’s monetary policy trajectory is unlikely to change if inflation does rise.
However, this does not indicate that the underlying impacts of inflation will disappear. For example, if bond rates remain steady, real bond yields will decrease, weakening the dollar.
US Inflation – What to look out for?
Overall, the annual data are the ones that pique the markets’ interest. Analysts predict that October’s annual CPI change figures will increase to 5.8 percent, up from 5.4 percent in the previous reading. That’d be the highest level since early 2008, just before the subprime mortgage meltdown. And if it goes any higher, it will be the highest amount since the late 1980s.
Furthermore, a surge in the inflation rate would end the “pause” in inflation acceleration that has been in place for the previous four months. The annual Core October inflation rate is expected to rise to 4.3 percent from 4.0 percent in September. In that situation, the growth would be less striking. This is because it merely returns to what it was in August.
Still, this is not a good sign for policymakers, who had previously assured that hyperinflation would be temporary.
GBP/USD price forecast – Daily technical levels
Support Resistance
1.3515 1.3601
1.3476 1.3648
1.3429 1.3686
Pivot Point: 1.3562
GBP/USD Standstill at $1.3560 – Brace for US Inflation figures
The GBP/USD pair exhibits a neutral bias while trading at the 1.3548 level on the technical front. Overall, the pair is in a consolidation phase, maintaining a narrow trading range of 1.3592 – 1.3532.
In the 4-hour timeframe, the GBP/USD pair has completed a 61.8% Fibonacci retracement at the 1.3592 level. The closing of a candle below this level suggests the odds of a bearish reversal in the GBP/USD. The downward trendline also extends significant resistance at the 1.3592 level in the same timeframe, supporting the potential selling trend.
On the bearish side, the GBP/USD’s immediate support is at the 1.3532 level. The 38.2% Fibonacci support level extends such support.
Furthermore, the RSI and MACD remain in a sell zone, respectively below 50 and 0. Alongside, the 20 EMA is crossing the 50 EMA from upside down, demonstrating a bearish crossover.
Thus, the odds of a continuing selling trend remain pretty solid. Consider taking a sell position below 1.3592, with immediate targets at 1.3530 and 1.3450. Alternatively, the breakout of the 1.3595 level can help us secure a quick buy trade until 1.3700. Good luck, and stay tuned for more updates!
