The UK is scheduled to release its annual CPI reading today and possibly show bleaker inflation of 2.8% compared to the previous 2.9% reading. However, this is still way above the BOE’s 2% inflation target, which should remind traders that the central bank is still closely monitoring the annual CPI readings.
Bear in mind that Carney specified that one of the potential considerations for reducing stimulus later on is if inflation is likely to stay above 2.5% for the next couple of years.
On the 1-hour time frame, GBP/USD looks ready to pull back to the former resistance area around 1.5400. This is in line with the 50% Fibonacci retracement level.
Stochastic is already in the oversold area, hinting that pound bears are tired. This suggests that a bounce could be in the cards, depending on how the CPI figures turn out.
A bounce from the 38.2% or 50% Fib areas could take the pair back up to its recent highs near 1.5600. A stop below the lowest Fib or below 1.5350 would yield a good reward-to-risk for this trade.
By Kate Curtis from Trader’s Way.