gbpusd at inflection zone for potential decline ahead of uk inflation data 1849062017

Later today at 0830 GMT, UK will release its key inflation data for March as follow:

• Core Consumer Price Index (1.9% y/y consensus with 2.0%y/y seen in Feb)
• Core Producer Price Index (2.5% y/y consensus with 2.4% y/y seen in Feb).

Since October 2016, inflationary pressures have started to build-up in U.K due to a weak GBP in a post Brexit environment.  Core CPI has increased from 1.2% y/y in October 2016 to 2% y/y in February 2017.  In addition, overall CPI which includes energy and food prices rose to 2.3% y/y in February, the highest since September 2013 and it also surpassed the Bank of England’ inflation target set at 2%.

Given the rise of inflationary pressures, some members of the  Bank of England’s Monetary Policy Committee (MPC)  have started to raise concerns that their tolerance for higher inflation are coming to a “upper limit” where they may start to vote for a rise in the benchmark policy interest rate in the near future. Thus, these hawkish elements in BoE are supporting the GBP in the wake of potential slower growth as UK kick-starts a “challenging” Brexit negation process with European Union members.

Now, let’s us take a look at the latest technical elements of GBP/USD.

Short-term technical outlook on GBP/USD

(Click to enlarge charts)

Key technical elements

• Since the “Flash Crash” of 07 Oct 2016, the pair has been evolving in a “Symmetrical Triangle” range consolidation configuration with its respective upper boundary (resistance) at 1.2580 and lower boundary (support) at 1.2230/2160 (see daily chart).
• From a shorter-term perspective, the pair has started to trade within a minor bearish descending channel in place since its 27 March 2017 minor swing high of 1.2616 (see 1 hour chart).
• The upper boundary of the aforementioned minor descending channel stands at 1.2470 which is also coincides closely with the former minor ascending trendline support from 29 March 2017 minor swing low and the 76.4% Fibonacci retracement of the recent decline from 06 April 2017 minor swing high of 1.2506 to last Friday’s U.S. session low of 1.2363.
• The daily RSI has been capped by a corresponding resistance and shows further downside potential towards its support in place since late December 2016. In addition, the hourly Stochastic oscillator has flashed a bearish divergence signal at its overbought region. These observations suggest that the upside momentum of the on-going up move from last Friday’s low has started to abate.
• The key short-term resistance stands at 1.2470
• The key short-term support rests at 1.2320/2300 which is defined by the former minor swing highs of 04 March/16 March 2017 and a Fibonacci cluster.

Key levels (1 to 3 days)

Intermediate resistance: 1.2430

Pivot (key resistance): 1.2470

Supports: 1.2363, 1.2320/23000 & 1.2250

Next resistances: 1.2550 & 1.2580

Conclusion

Yesterday’s corrective up move seen on the GBP/USD from last Friday, 07 April low of 1.2363 has now reached a short-term inflection zone of 1.2430/2470 where it may start to reverse and continue its short-term downtrend within the medium-term “Symmetrical Triangle” range configuration.

As long as the 1.2470 short-term pivotal resistance is not surpassed, the pair is likely to see a potential push down to retest 1.2363 before targeting the next support at 12320/2300  

On the other hand, a clearance above 1.2470 may invalidate the preferred bearish scenario for a further push up towards 1.2550 and even the “Symmetrical Triangle” range top at 1.2580.

Charts are from eSignal

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