UK inflation up next, GBP/USD headed for the pandemic low?

As markets are still reeling from the US inflation report, a hotter than expected CPI set for the UK could simply add to the panic. At least to a degree. The difference here though is that inflation is expected to rise (as opposed to soften like in the US) but in the current climate, a hotter than hot report could add further pressure to equity markets.

• Core CPI is forecast to rise to 0.8% m/m (0.3% previously), and to 6.3% y/y (6.2% previously)
  
• CPI is expected to rise to 10.2% y/y (10.1% prior) and to 0.6% m/m (0.6% previously)
  
• PPI input is expected to rise to 22.4% y/y (22.6% prior) and 0.3% m/m (0.1% previously)
  

Whilst the prospects of higher Fed rates are favourable to the US dollar, the same cannot be said for the BOE’s need to hike and the British pound. With talks of a potential currency crisis, a recession and double-digit inflation in the UK, stronger inflation numbers simply exacerbate these issues.


A large bearish engulfing candle formed yesterday, and the hourly chart broke trend support with a blink of an eye. Prices have pulled back overnight, but the RSI(2) is oversold - and that can be an indication of a near-term top. Besides, with a resistance zone nearby (and the 200 and 50-bar EMA’s just above it) I would prefer to fade into spikes with a view of hopefully catching a move down towards the March 2020 low. Therefore, I am looking for evidence of a swing high up to the 1.1550/80 region for a swing trade short.

Comment:

Momentum turned lower following the UK inflation report, but failed to hold beneath 1.5000 before turning higher into the initial resistance zone.

Note that yesterday's high formed at the 20-bar EMA on the 1-hour chart.

Whilst the potential for another move down to the March 2021 low remains plausible, it requires a fresh signal to enter short IMO.
www.tradingview.com/u/Matt_Simpson/