Today we saw GBPUSD rally off the back of a positive CPI number. This figure increases the probability that the Bank of England (BoE) will raise interest rates sooner than expected.
Thursday sees the BoE rate decision.
- Currently in daily uptrend (making higher highs and higher lows).
- Trending higher in a channel that has been tested three times above and below, suggesting it is a strong channel.
- MACD given buy signal and recently crossed the zero line to the upside.
- Broke resistence at 1.2775 when Prime Minister May announced the snap election. Since then that level has acted as a support level.
- Next major level, assuming we break the previous highs, is 1.3446.
Resistance – 1.3268, 1.3400, 1.3446 & 1.34843.
Support – 1.32066, 1.3100 & 1.3000
The technical indicators are all pointing to the upside. It is trending higher in a strong channel and does not have too many significant resistance levels ahead of it.
The major resistance zone lies between 1.34 and 1.35. Here you find the top of the channel, a major resistance level, a monthly R2 pivot level (1.3484) and two psychological levels at 1.34 and 1.35.
I would be surprised to see this market fly straight through that area of resistance.
Should we see this market come off, there are plenty of support levels to look to buy this market.
- Trending higher (making higher highs and higher lows).
- Momentum increased (steeper trend line drawn), then recently slightly decreased (Steep trend line broken).
- Recently held on 50 exponential moving average (EMA).
- Fibonacci drawn from low of the swing to the top of the move we saw off the back of the CPI number.
Resistance – 1.3287 & 1.3300
Support – 1.3221, 1.3200 & 1.3162
There is a nice confluence at the level of 1.3222, where we have a support level, a trend line and the 50 EMA will likely come in.
Should we see the market break through that level, there is a high chance this market will stall and consolidate until Carney and the rest of the BoE let us know what they're thinking with regards to interest rates.
I expect this market to continue to the 1.34 level and begin to consolidate. Once it gets there it will likely be over extended.
If the BoE hold rates at the same level, I would expect a fairly muted market reaction due to it having been priced in. The expectancy is now that rates may rise quicker than first anticipated, however Carney has always said they expect the inflation rate to rise quickly due to the sudden depreciation of the pound.
It was seen today that one of the reasons we have seen the increased CPI figure was because of higher clothes prices. Imports are significantly more expensive because of the value of the pound and this has been passed to the consumer.