GBP/USD: Impact of UK Inflation and Recovery Outlook

GBP/USD has lost its traction and dropped to its lowest level in over a week, near 1.2550, following weak inflation data in the UK on Wednesday. Bank of England Governor Bailey stated that inflation data hadn't really changed their outlook since the February monetary policy decision. After closing in negative territory on Tuesday, GBP/USD continued to decline in Wednesday's European session and touched its lowest level in over a week below 1.2550. The short-term technical outlook suggests that the pair still has room to fall before becoming technically overbought. January's US Consumer Price Index (CPI) data triggered a rally in the US dollar during Tuesday's American trading hours and caused a sharp drop in GBP/USD. On a monthly basis, both CPI and Core CPI, which excludes volatile food and energy prices, increased by 0.3% and 0.4% respectively. Both of these figures exceeded analyst estimates and boosted the US dollar. Wednesday morning, the UK's Office for National Statistics (ONS) reported that the annual CPI inflation and core CPI inflation remained steady at 4% and 5.1% respectively. CPI decreased by 0.6% in January, while the monthly Consumer Price Index fell by 0.3%. Although these data aren't weak enough to prompt Bank of England policymakers to consider a policy change, they still make it difficult for the Pound to recover. Inflation is expected to fall to target by spring. What happens to inflation in spring won't determine monetary policy. UK debt demand is strong, has been strong since the beginning of the year. Overall, the situation for the Pound isn't the best considering a likely seasonal dollar rally towards the end of February and March. On the daily chart, a downtrend channel is noticeable after a retest in the supply zone and Fibonacci level 0.705, while I await a breakout of the demand zone at levels 1.2549 and 1.2448, then a retest on the lower side of the same zone and subsequently a bounce at level 1.2320, where we have an additional demand zone and a sensitive Fibonacci level. Upon reaching that level, it will be interesting to evaluate potential upward movement. Greetings and happy trading to all.

Comment:

Perfect touch and go of the lower band of the bearish channel. Tomorrow I will look for a short entry.. waiting for a retracement.

Comment:

Waiting for the break of the bearish channel. Without the break, we don't have a short in this pair.