Yesterday, on the hourly chart, the GBP/USD pair confirmed its consolidation below the corrective level of 127.2% (1.2777), indicating the potential for a further decline toward the Fibonacci level of 100.0% (1.2676). Today, there was a rebound from the 1.2777 level, further increasing the likelihood of a downturn. Although the ascending trendline reflects bullish sentiment among traders, significant downward potential exists for the British pound towards this trendline.
Today, the UK released the Consumer Price Index for May, which remained unchanged at 8.7% from the previous month. In contrast, the core Consumer Price Index increased from 6.8% to 7.1%, contrary to traders' expectations of a decrease of 6.8%. However, similar to headline inflation, there was no decline. It would be inaccurate to say that this report disappointed either bears or bulls; rather, it merely affirms the obvious: inflation in Britain continues to decelerate at a slow pace, despite the Bank of England implementing 12 interest rate hikes. Although there may be a thirteenth hike tomorrow, it is evident that inflation hardly responds to the regulator's actions.
In light of this report, the British pound demonstrated mixed dynamics, initially experiencing a slight rise but subsequently declining. The decline persists at the time of writing. The market will eventually become disillusioned with the British pound since raising rates becomes meaningless if inflation fails to decrease. Traders previously anticipated further tightening from the MPC, but now the Bank of England cannot confidently assert a 2% rate increase. Doing so would only further burden an already struggling economy. Rate hikes will cease soon, although there will be a 0.25% increase tomorrow.
According to the Commitments of Traders (COT) report, the sentiment of the "Non-commercial" trader category has slightly diminished in bullishness over the past reporting week. The number of long contracts held by speculators increased by 11,320 units, while short contracts increased by 17,069. Although major players' overall sentiment remains predominantly bullish, the number of long and short contracts now stands at nearly equal levels, at 76,000 and 69,000, respectively. The British pound exhibits favorable prospects for further growth, with the current information background providing more support than the dollar. However, I do not anticipate a significant rise in the pound sterling in the coming months. This week, the Bank of England's meeting outcomes will offer greater clarity on the pound's outlook.
Noteworthy events on the news calendar for the US and the UK include:
UK: Inflation Report (06:00 UTC).US: Fed Chair Powell Testifies (14:00 UTC).Wednesday's economic events calendar encompasses two highly significant entries, and the impact of the information background on trader sentiment today can be substantial.
GBP/USD forecast and trader advice:
I recommended selling the pound if it drops below the 1.2777 level on the hourly chart, aiming for a target of 1.2676. Buying the pound is an option if it surpasses the 1.2777 level on the hourly chart. The targets for buying are 1.2860 and 1.2905. Another possibility for buying is if there is a rebound from the 1.2676 level, with a target set at 1.2777.