Shortly we will see the UK inflation numbers released. Currently the CPI figure is sitting above the Bank of Englands (BoE) 2% target by 0.6%. This will undoubtedly unnerve the hawks that sit on the members board, who will be looking to influence a rate hike later this year.
The BoE will be careful to pander to the hawks with UK GDP struggling down at 0.3%. Any rate hike may smother the chance of economic growth. This will then put the BoE in a slightly awkward position should we see a beat at 09:30.
Carney is likely to stick to his same rhetoric that any increases does not represent actual inflation, and that it is down to the sharp drop in Sterling last year following the Brexit vote.
Chart 1: GBP/USD Daily
- Currently sitting below the psychological number of 1.30.
- Previous low 1.2932 is being tested. Currently acting as support.
- Monthly S1 (1.2939) also acting as support in same zone.
- Divergence in the MACD and sell signal.
- Current trend line could act as support.
Resistance: 1.30, 1.3020 & 1.3089.
Support: 1.2940, 1.2932 & 1.2811.
Cable (GBP/USD) finds itself at a pivotal point as I write this. Currently selling off slightly before the UK inflation figure is released. This will likely be the catalyst that either sees it break through the support levels and sees the bears take control. Alternatively, it will hold support and see the uptrend continue.
The technical analysis is not clear on direction. There are arguments for both a move higher and a move lower. I would lean more to the bearish side of things because of recent sentiment.
However, if we see this support area break today, it opens up good buying areas. A low test of the 1.2811 level and a close above the trend line would be a good confirmation to buy this market.
Ultimately, I would wait for the market to show you a direction before putting any money at risk.