Today, we will again focus on high inflation in the UK, take a look at the economic calendar, and discuss how the week may end for the GBP/USD pair.
Inflation in the UK remains high which is confirmed by the CPI report for February. It is logical to assume that market participants would have expected the Bank of England to take aggressive measures to tackle inflation. However, it seems that investors have shrugged off the report on consumer prices. Such a neutral reaction of the market may be due to several factors. Either the price growth has already been priced in by investors, or traders have simply ignored it. However, this report may affect the trajectory of the pair later. The latter scenario seems very unlikely, but I would not completely dismiss it. Recently, market participants have shown mixed reaction to the incoming macroeconomic news, downplaying it most of the time.
Annual inflation growth to 6.5% poses a challenge to the Bank of England who needs carefully consider its every step. As I have already mentioned in my previous reviews, some investors expect the UK regulator to raise the interest rate by 25 basis points at its meeting on May 5. However, the BoE may hesitate to take such aggressive measures due to the weak economic growth. For instance, today's data on retail sales also fell below expectations. Thus, retail sales in the UK declined by 0.3% month-on-month, while analysts predicted a 0.6% increase. In annual terms, the indicator came in below the forecast of 7.8% and stood at 7%. In the US, two reports can be mentioned today: the University of Michigan's sentiment index and pending home sales. In addition, San Francisco Fed President John Williams and Richmond Fed President Thomas Barkin will make statements today.
Daily chart
Yesterday, the pound bulls lost control. The shape of the candlestick formed on March 24 proves this fact. At the start of the trading, the pair advanced to 1.3212, but then the market sentiment changed sharply towards the US dollar. As a result, GBP/USD closed the session at 1.3179. A similar scenario is repeated today. Although the pair managed to rise higher to 1.3223, it made a strong pullback afterward. At the moment of writing, GBP/USD was trading near 1.3166. Such a price dynamic confirms the strength of bearish resistance at 1.3200-1.3225. If the pound bulls manage to move above this price zone, this will open the way towards another key technical level of 1.3300. If the current decline continues, the pair may find support at the red Tenkan line of the Ichimoku Indicator located at 1.3148. On the weekly chart, I saw a candlestick with no body and long shadows, with the upper shadow being much longer. Such a mixed picture discourages me from opening new positions, especially on the last day of the week. I think we should stay out of the market for now and wait for the final closing price of the week. Let's hope that on Monday the situation will be clearer.
Have a good day!