GBP/USD Forecast: Trading the CPI report

FX:GBPUSD   British Pound / U.S. Dollar
UK inflation as measured by consumer price index ( CPI             ) for the month of June due for release today is expected to show cost of living as ticked higher in annualized terms.

Headline CPI             YoY is seen rising 0.4% compared to 0.3% in May. Month-on-month the number is seen unchanged at 0.2%. Meanwhile, annualized core CPI             is seen rising 1.3% compared to previous month’s reading of 1.2%.

Good news could be viewed with skepticism

Note the data represents just one week of the post Brexit vote period (referendum result was out on June 24). Hence, upbeat figures could be viewed with skepticism and markets may wait for July figures before concluding the economy is resilient to Brexit.

On the other hand, a weaker-than-expected number would heighten fears of a further disinflation in July and thus add to speculation of BOE easing in August.

Technicals – 1.3315 is a strong resistance

  • Cable is heading into the data release on a weak footing, given the pair failed to take out 1.3315 (23.6% of 1.5019-1.2789).
  • An inverse head and shoulder formation could be seen on the 4-hr charts, with neckline resistance at 1.3471. The neckline could be put to test if the spot manages to take out 1.3315 on strong inflation number.

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