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Pound Sterling Ignores Rising Consumer Prices to Trade Below 1.42

May 19, 2021 by Forex Winner Leave a Comment

Pound Sterling Ignores Rising Consumer Prices to Trade Below 1.42

Summary:

  • The GBP/USD currency pair on Wednesday afternoon pulled back to trade at 1.4165 after the UK CPI release. 
  • The currency pair is now pinned at 1.4165, just above the 100-hour moving average in the 60-min chart. 
  • The pair earlier bounced off the regressive trend at 1.4131 to trim session losses. 

The pound sterling on Wednesday edged lower against the US dollar following the latest round of UK data. The currency pair dropped from Tuesday’s highs of 1.4220 to trade at the 1.4131 level before recovering slightly to 1.4165.  

Fundamentals overview

The pair fell despite a significant improvement in the UK consumer prices, which rose 1.5%  in April. The market was expecting a change of 1.4% from the same period last year. 

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In March, the Office of National Statistics reported a 0.7% Y/Y change in consumer spending.

The sequential rise in CPI indicates rising inflation in the British economy. The Bank of England sees inflation rising above 2% up to 2.5% by the end of the year. However, there is an expectation that inflation will drop back to 2% in 2022 and 2023. 

The GBP/USD currency pair continues to trade within a rising channel after last week’s rebound. The BoE became the second bank after the Bank of Canada to announce a tapering plan for its asset purchase program introduced to stimulate the economy amid the pandemic.

Technical overview

GBP/USD chart

The pound sterling continues to trade in a rising channel formation against the US dollar in the 60-min chart. It now appears to enjoy strong support around the 1.4000 level. The GBP/USD has, however, slipped closer to oversold levels of the 14-hour RSI following Wednesday’s pullback.

The channel formation appears to have a strong Pearson’s correlation coefficient of 0.877. This means that there is a high likelihood the pair will continue to pull back and rebound closer to the mean section after every price swing. This creates trading opportunities for both the bulls and the bears.

Outlook and price action points

Looking forward, traders will be keeping tabs on today’s US FOMC minutes scheduled at 18:00 GMT. This will be an update on the economic outlook based on last month’s data. It could be more precautionary after April jobs numbers, ADP employment change, and the unemployment rate all missed expectations.

Looking forward to events on Thursday, traders will be keeping an eye on the US initial jobless claims for the week ending May 14, which are expected to drop to 450k down from 473k. The UK consumer confidence data will also be out and is expected to improve slightly to -12, up from -15 in the previous reading.

The bulls will be betting on better than expected UK data, and an increase in the US claims numbers. They will target profits at around 1.4220, a retest of the current 2-month highs, or higher at 1.4303.

On the other hand, the bears will be hoping for disappointing UK sentiment data and a better than expected US claim count. They will target profits at around the 100-hour moving average at around 1.4112 or lower at the 200-hour MA at 1.4024.

Conclusion

The GBP/USD currency pair retains a bullish outlook in the long term. The UK’s tapering plan will continue to boost the pound sterling against most currencies. 

On the other hand, the greenback may continue to experience declines after President Biden unveiled a new $1.8 trillion stimulus package late last month. 

Nonetheless, the pair will experience data-driven swings in the short term for both the bulls and the bears to capitalize.

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