Key Points
- GBP/USD could be on for its 3rd straight day of gains as it comes off the lows printed last week.
- UK inflation figures come in hot, justifying the more hawkish message from the Bank of England.
- Is GBPUSD ready for some short-term strength?
Market Overview
The buyers have crept back into the market after last week saw the GBP/USD bears piling in with five consecutive days of downside. GBP/USD is now off the 1.26000 low printed on Friday and could be eyeing up its third consecutive day of upside if the pound continues its run today.
However, since September, any strength in this market has been short-lived. Therefore, the bears may see this as an opportunity to go short from a resistance area. Since September 25th, GBP/USD is down more than 6%.
UK Inflation Comes In Hot
This morning, the UK’s Office for National Statistics reported that yearly inflation levels in the UK increased to 2.3% from 1.7%. This beat the market expectation of 2.2%. Furthermore, the Core CPI, seen as your “true inflation” as it excluded volatile food and energy prices, rose to 3.3%, up from 3.2%.
One of the key takeaways from the latest Bank of England monetary policy report was the phrase, “We need to ensure inflation stays low. So we will not cut rates too quickly or too much.” With inflation rising in today’s report, this opens the door to an even more conservative Bank of England decision in December, which could boost the pound in the short term.
GBP/USD Counter-Trend Buy Idea
GBP/USD has been trending lower for some time, and a daily Fibonacci retracement has been drawn from the swing high at 1.30103 to the swing low at 1.26000. With the market coming off the lows, the bulls may try to target two key levels. The first is the 38.2% retracement at 1.27542, and the second is at the 61.8% retracement at 1.28535.
However, traders should be aware that this is a bearish market at the moment, and any strength may be short-lived due to the strength of the US dollar. Therefore, these key levels may act as great resistance areas from which to sell.
Risk Disclosure: The information provided in this article is not intended to give financial advice, recommend investments, guarantee profits, or shield you from losses. Our content is only for informational purposes and to help you understand the risks and complexity of these markets by providing objective analysis. Before trading, carefully consider your experience, financial goals, and risk tolerance. Trading involves significant potential for financial loss and isn't suitable for everyone.
