Monday (May 16) GBPUSD was gently bullish, with markets calmed by a lack of economic news and a bank holiday across most of Europe.
The pair then moved decisively up in this morning (May 17)’s Asian session halting around a minor level of resistance before resuming the bull trend pre-London open.
Tuesday 17th May: UK CPI (0930) and US CPI (13.30)
The Bank of England’s quarterly inflation report last week was cautiously optimistic suggesting that the UK’s rate of inflation would reach 2% in 2018. This is conditioned on the UK voting to remain a member in next month’s referendum on EU membership . The extent to which this will weigh on Sterling is not known, but we can assume that positive or neutral inflation data will not excite buyers as much as it might have done.
A CPI figure at or above the forecast 0.5 is a step towards the conditions required for normalisation of monetary policy (ie interest rate increases) so could feed a bull move.
The same applies of course for US CPI announced around London lunchtime. Rate hike speculators are looking for signs that give the Fed permission to increase interest rates although Fed Funds Futures and Fed rhetoric suggest that this will be later than the once-anticipated June.
A mismatch between UK and US releases could help the pair break out of its current range.
This week GBPUSD is about a range break out that is likely to follow economic data releases affecting the two currencies (Chart A).
Upper range is around 1.452, a breakout from which leaves a fairly clear path to 1.46 – 1.47
Lower range is around 1.434, a breakout from which would meet support around 1.4295 and then on to 1.40.
Overnight’s bullish move slowed around Weekly R1 but has just broken through indicating continued bullish interest in the market ahead of UK inflation data.
Short and medium term stochastic data provide a mixed message, with H1 and H4 overbought at minor resistance and D1 oversold – slightly favouring a bullish breakout but again, suggesting sufficient resistance in the market to force a move down if UK CPI misses expectations.