GBP/USD. October 18th. Inflation in Britain is not decreasing
October 18, 2023 11:23 am
On the hourly chart, the GBP/USD pair displayed a decline below the 1.2175 mark on Tuesday, followed by a reversal and an ascent beyond 1.2175. In my previous discussion, I pointed out that the 1.2175 level lacks strength, and signals shouldn’t be anticipated near it. The uptrend may persist, heading toward the 161.8% correction level at 1.2250 and subsequently to 1.2336. Nevertheless, the current situation is not entirely clear-cut.
The British pound’s recent 200-point decline by the end of the previous week led to a break below the lows seen on October 9th. Consequently, it marked the initial signal of a shift towards a “bearish” trend. However, a new downward wave emerged yesterday, which didn’t breach the lows of the prior wave. This wave signifies a shift towards a “bullish” trend. Presently, the wave scenario remains ambiguous, mirroring the uncertain backdrop, and the chart pattern. In my view, the upward trend will persist, but there’s currently an abundance of signals pointing in diverse directions.
The information backdrop concerning the British currency continues to be relatively weak. Yesterday’s report on earnings led to a drop in the British pound, while today’s inflation report led to an increase. I do not consider the rise in the British pound based on the absence of an inflation decline in September in the UK to be a natural consequence. Even a decrease in core inflation from 6.2% to 6.1% is hardly a positive development. The fact remains: inflation in Britain is decreasing, but it is doing so very slowly. In the last two months, it has decreased by just 0.1%. Thus, the Bank of England must take action and show readiness to raise the interest rate once again if it wants to achieve a target of at least 5% by the end of the year. Perhaps this is what traders are counting on when buying the pound on Wednesday.
On the 4-hour chart, the pair has rebounded from the upper boundary of the descending trend corridor. The “bearish” divergence in the CCI indicator has greatly aided this move. The imminent “bullish” divergence in the CCI indicator has been canceled. In fact, on the 4-hour chart, the decline in quotes may continue, but both pairs are currently showing a complex and confusing chart pattern. A rise in the pair is more likely on the hourly chart.
Commitments of Traders (COT) report:
The sentiment of “non-commercial” traders in the past reporting week has become more “bearish.” The number of long contracts in speculators’ hands decreased by 7,621 units, while the number of short contracts decreased by 4,253 units. The overall sentiment of major players has shifted to “bearish,” and the gap between the number of long and short contracts is increasing, but now in the opposite direction: 66,000 versus 76,000. In my opinion, the British pound still has excellent prospects for further decline. I do not expect a strong pound rally in the near future. I believe that over time, the bulls will continue to liquidate their buy positions, similar to the situation with the euro. Only a breakout above the descending channel on the 4-hour chart will make me consider a new “bullish” trend. I do not anticipate a decline in the British pound this week, but I consider it possible.
Economic calendar for the USA and the UK:
UK – Consumer Price Index (06:00 UTC).
UK – Core Consumer Price Index (06:00 UTC).
USA – Building Permits (12:30 UTC).
USA – Federal Reserve Beige Book (18:00 UTC).
Wednesday’s economic calendar contains several interesting entries, two of which are already available. The impact of the information background on market sentiment today will be of moderate strength.
GBP/USD Forecast and Trader Tips:
Selling the British pound was possible when the hourly chart closed below the ascending channel with targets at 1.2250 and 1.2175. Both have been achieved. New sales of the British pound will be possible on a breakout below 1.2250, with targets at 1.2175 and 1.2140. Buying was possible when the hourly chart closed above the level of 1.2175 with a target of 1.2250.
The material has been provided by InstaForex Company – www.instaforex.com
On the hourly chart, the GBP/USD pair displayed a decline below the 1.2175 mark on Tuesday, followed by a reversal and an ascent beyond 1.2175. In my previous discussion, I pointed out that the 1.2175 level lacks strength, and signals shouldn’t be anticipated near it. The uptrend may persist, heading toward the 161.8% correction level at 1.2250 and subsequently to 1.2336. Nevertheless, the current situation is not entirely clear-cut.
The British pound’s recent 200-point decline by the end of the previous week led to a break below the lows seen on October 9th. Consequently, it marked the initial signal of a shift towards a “bearish” trend. However, a new downward wave emerged yesterday, which didn’t breach the lows of the prior wave. This wave signifies a shift towards a “bullish” trend. Presently, the wave scenario remains ambiguous, mirroring the uncertain backdrop, and the chart pattern. In my view, the upward trend will persist, but there’s currently an abundance of signals pointing in diverse directions.
The information backdrop concerning the British currency continues to be relatively weak. Yesterday’s report on earnings led to a drop in the British pound, while today’s inflation report led to an increase. I do not consider the rise in the British pound based on the absence of an inflation decline in September in the UK to be a natural consequence. Even a decrease in core inflation from 6.2% to 6.1% is hardly a positive development. The fact remains: inflation in Britain is decreasing, but it is doing so very slowly. In the last two months, it has decreased by just 0.1%. Thus, the Bank of England must take action and show readiness to raise the interest rate once again if it wants to achieve a target of at least 5% by the end of the year. Perhaps this is what traders are counting on when buying the pound on Wednesday.
On the 4-hour chart, the pair has rebounded from the upper boundary of the descending trend corridor. The “bearish” divergence in the CCI indicator has greatly aided this move. The imminent “bullish” divergence in the CCI indicator has been canceled. In fact, on the 4-hour chart, the decline in quotes may continue, but both pairs are currently showing a complex and confusing chart pattern. A rise in the pair is more likely on the hourly chart.
Commitments of Traders (COT) report:
The sentiment of “non-commercial” traders in the past reporting week has become more “bearish.” The number of long contracts in speculators’ hands decreased by 7,621 units, while the number of short contracts decreased by 4,253 units. The overall sentiment of major players has shifted to “bearish,” and the gap between the number of long and short contracts is increasing, but now in the opposite direction: 66,000 versus 76,000. In my opinion, the British pound still has excellent prospects for further decline. I do not expect a strong pound rally in the near future. I believe that over time, the bulls will continue to liquidate their buy positions, similar to the situation with the euro. Only a breakout above the descending channel on the 4-hour chart will make me consider a new “bullish” trend. I do not anticipate a decline in the British pound this week, but I consider it possible.
Economic calendar for the USA and the UK:
UK – Consumer Price Index (06:00 UTC).
UK – Core Consumer Price Index (06:00 UTC).
USA – Building Permits (12:30 UTC).
USA – Federal Reserve Beige Book (18:00 UTC).
Wednesday’s economic calendar contains several interesting entries, two of which are already available. The impact of the information background on market sentiment today will be of moderate strength.
GBP/USD Forecast and Trader Tips:
Selling the British pound was possible when the hourly chart closed below the ascending channel with targets at 1.2250 and 1.2175. Both have been achieved. New sales of the British pound will be possible on a breakout below 1.2250, with targets at 1.2175 and 1.2140. Buying was possible when the hourly chart closed above the level of 1.2175 with a target of 1.2250.
The material has been provided by InstaForex Company – www.instaforex.com
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