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UK CPI Will Decide the Pounds Fate

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UK CPI Will Decide the Pounds Fate

On Tuesday the UK Government will release both core and headline Consumer Prices, which will likely decide the fate of the GBPUSD over the short term. The pound is resting on important trend line suport and a stronger than expected inflation number will likely be the impetus sterling traders need to push the currency pair over the edge.

On Tuesday, the UK will release a number of inflation indices including CPI, core CPI and Retail prices. Expetations are for a 1.7% increase, 1.6% increase and a 1.7% increase respectively. CPI and core CPI are the more important of the inflation indices and any number above 2% will likely push traders to sell sterling interest rates futures and increase pressure on the BoE to move toward a tightening posture.

Cable has eased toward trend line support which connects the lows in November to the lows in February coming in near 1.6480. The exchange rate has moved lower for 5-consecutive days leading into Monday’s trading. A close below this level would likely lead to a quick test of support near the February lows at 1.6250. Resistance is seen near the 5-day moving average near 1.6522.

Momentum on the currency pair is negative with the MACD (moving average convergence divergence) index printing in negative territory with a downward sloping trajectory. The MACD generated a sell signal in early March and continues to experience increasing negative momentum. The RSI seems to be holding steady near 38 which is the lower end of the neutral range, but the lowest level of the momentum index seen over the last 6-months.

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