GBP/USD: Sterling In The Spotlight Ahead Of Carney, UK Inflation

GBP in the Spotlight This Week – Emphasis on Tuesday

Of particular interest for this week is the British Pound. Tuesday especially should be busy, as we get a pivotal CPI print that will help determine just how likely a rate hike might be out of the Bank of England before the end of the year. Inflation has been somewhat of a pain point for the BoE, as the bank has tried to remain uber-dovish in light of potential complications around Brexit. But as the BoE has tried to remain dovish, inflation has continued to climb, and we may be at the point where this number crosses the psychological 3% marker.

UK Inflation Bucking Up Against 3%

Chart prepared by James Stanley

We also hear from Mr. Carney twice tomorrow: Before CPI, Mr. Carney will appear in front of the Treasury with Sir Dave Ramsden and Ms. Silvana Tenreyro; and after CPI, Mr. Carney will testify in front of lawmakers at 6:15 AM ET.

Last week saw the British Pound on a veritable rollercoaster. Coming into October, GBP was on flimsy footing as the previous bullish move looked as though it would be entirely retraced out of markets. Sterling had recently caught a significant topside bid to break above the 1.3600-level after the BoE warned that rate hikes might be on the horizon in the effort of tempering that aggressive inflation, but after support and higher-lows were unable to hold, it appeared as though a bearish move might be right around the corner.

But as USD-weakness began to show around the NFP print earlier in the month, GBP/USD firmed and price action began to put in bullish connotations again. After running into resistance around 1.3250 last week, an aggressive sell-off showed for about four hours on Thursday, but that was met with buyers who quickly re-drove prices back towards those highs.

GBP/USD Four-Hour: Cable Bottoms Around NFP (Green), Current Resistance at 38.2% Retracement

Chart prepared by James Stanley

On a longer-term basis, this puts Cable in an interesting spot. On the weekly chart below, we’re looking at a down-ward sloping trend-line taken by connecting the 2014 top to the spike-high from the Brexit referendum. The projection of that trend-line runs into current resistance, and should this short-term bullish price action continue, this would open the door for a re-test of that trend-line, which is confluent with the 50% retracement of the Brexit move in the pair.