UK CPI preview: What to expect of GBP/USD?

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Feb 16, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    The GBP/USD pair is on a weak footing after BOE’s McCafferty blamed receding inflationary pressures for his decision to ditch rate hike call. McCafferty also talked about negative rates. The dovish comments hit the wires in the NY session and weakened Sterling ahead of the monthly UK CPI release.

    Focus on core CPI

    The economy is expected to hit deflation in January, however, that may not be a surprise for the markets, given the slide in the energy prices and the downward revision of inflation forecasts in the BOE’s quarterly inflation report.

    Traders would be more interested to see if core inflation is holding up well. The headline number is contracting 0.7% m/m, while core inflation is slowing to 1.3% y/y from December figure of 1.4%. A weaker-than-expected core inflation figure could heighten concerns regarding disinflation and weigh over Pound.

    Moreover, it would add credence to McCaffery’s dovish turn. The policymaker was the sole dissenter, before he turned in favor of keeping rates unchanged earlier this month.

    A better-than-expected figure headline and core inflation figure could strengthen Sterling, although Brexit fears may restrict upside in the pair.

    GBP/USD Technical Levels

    The spot currently trades around 1.4425. The immediate support is seen at 1.4374 (50% of 1.4079-1.4668), under which the pair may extend the drop to 1.4351 (23.6% of 1.5230-1.4079). A break lower would expose 1.43 handle. On the other hand, 1.4443 (38.2% of 1.4079-1.4668) could act as an immediate resistance, which if taken out shall open doors for a rally to 1.4478 (5-DMA). A break higher would expose 1.4516-1.4519 (23.6% of 1.5930-1.4079 + 38.2% of 1.5230-1.4079).
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