GBPUSD remains bearish

19 ott 2023

British inflation has slowed slightly, but only slightly; the Bank of England is expected to keep interest rates unchanged at its November meeting; technical analysis shows favorable signs for sterling bears.

It is very difficult for the Bank of England to combat inflation. Can the pound continue its rise in the fourth quarter?
Sterling fundamentals background
UK CPI data showed that both overall and core CPI continued to fall, although the results were higher than expected. The performance of the inflation data was generally in line with expectations, but showed that inflationary pressures in the British economy still have some resilience. Rising oil prices, driven by higher motor fuel prices, were the biggest factor driving the annual increase in inflation, while inflationary pressures on food and non-alcoholic beverages and furniture and household goods increased modestly.

The decline in UK PPI is expected to cool inflation in the future as it is a leading indicator of CPI. The Bank of England will now be monitoring the performance of this data ahead of its November meeting.

The pound strengthened against the dollar following the data, but currency market pricing suggests market expectations have not changed (as shown in the chart below). Markets still tend to predict that Bank of England interest rates will remain unchanged at its November meeting, while other central banks around the world may do the same as geopolitical conflicts in the Middle East escalate. Next, UK employment data to be released on October 24 will be closely watched for clues on the Bank of England's next move.

Price action on the daily chart shows GBP/USD trading in a bearish flag formation, with the pair trading around the psychological 1.2200 mark. Bears will likely be hoping that the moving average cross will push the price below the support of the flag and allow the price to fall further towards the lower support zone. From a momentum perspective, the RSI indicator is also pointing to a bearish outlook as it remains below the neutral level, suggesting that prices may be heading lower.

How to efficiently chase the rise and kill the fall? Use the RSI indicator to identify entry and exit points!
Key resistance levels:

• 50-day/200-day moving average

• Flag resistance

• 1.2308

Key support levels:

• 1.2200

• Flag support

• 1.2100

• 1.2000

• 1.1804
IG Client Sentiment Index: Bearish
The IG Client Sentiment Index shows retail traders are currently net long GBP/USD, with around 69% of traders holding long positions at the time of writing

19 ott 2023

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