The sterling has been in a choppy session on Tuesday and early Wednesday as the economic indicators released caused mixed emotions for the economy. The UK inflation rate for April disappointed the market as it came out at 0.3% YoY from 0.5% forecasted, snapping the progress recorded the last five months. The consumer prices compared to the month before rose by 0.1%, the lowest over the last three months versus 0.3% predicted. The retail price index was also on the side of the weaker than expected data, while the producer price indexes for input, output overall and core indicators surpassed analysts’ expectations. It’s worth mentioning, that the latest survey shows only 24% possibility of Brexit as the economy wins out. Today, the GBP traders are looking forward to the UK employment report. Later in the day, the State Opening of Parliament will take place.
The GBP/USD pair surged during yesterday’s session and tested the suggested zone at 1.4515 – 1.4530. Following that aggressive move to the upside, the pair quickly reversed course and fell, however, it managed to end the day up 0.40%. The pair is trading -1.20% so far this month, however, the last 2 months the pound has managed to add more than 5% to its value.
On the daily chart, the pair remains in an uptrend channel, however, the last few days it remains stuck in a range between two significant levels, the 1.4300 and the 1.4500. Few days ago we saw a break attempt on both sides but both failed, highlighting the fact that the markets are really lacking direction over the last couple of weeks. The descending trend line dating back to May is continuing to provide support for the pair. The 50-SMA is also providing significant support for the pair while the RSI is in the process of creating another leg upwards, both of which are also bullish. All in all, the daily chart certainly suggests we are due some pound strength.
The 4-hour chart also highlights a general lack of direction at the moment. The fact that the price action is flattering off can be read in two ways. Either we are seeing some consolidation ahead of a continuation of the uptrend or the bulls have lost momentum and the bears are creeping back in. I think the former is true, although I will need to see some confirmation of this, above the significant zone of 1.4500 – 1.4530. On the other hand, for confirmation of a reversal, we will need to see a break below the 23.6% Fibonacci level, as well as below the ascending trend line, near 1.4300. Also providing support at this level is the 50-day SMA, so a break of all of these levels would strongly suggest there’s been a change of bias in the markets.