GBP/USD Tests the 100-Day SMA Ahead of the U.K. Inflation Report
Consumer prices in the U.K. are expected to advance an annualized 3.1 percent in June after expanding 3.4 percent the previous month. Economists are forecasting inflation to slow as consumer’s scale back spending amid uncertainty in the labor market paired with tight credit conditions. As shown in the most recent labor report, employment remains elevated by part time payrolls as the number of full time workers continue to decline. This does not bode well for Great Britain as confidence among businesses deteriorates. Nonetheless, real incomes in the economy are expected to lose momentum on the back of earning freezes and public sector cuts. During the July policy meeting, the Bank of England refrained from raising its key overnight lending rate twenty five basis points. However, it is noteworthy that policy maker Andrew Sentence voted against the majority as he said inflation poses a problem due to its resilience. All in all, a slower than expected reading in consumer prices will validate the BoE decision to keep rates unchanged, and will confirm our bearish technical outlook.
GBP/USD: Price action has broken below the rising trend and now looks to have stalled at the 100-Day SMA. As this break below the lower trend line is indicative of further declines, market participants should remain on the sidelines until the pair displays a clear candlestick body below 1.500. At the same time, it is worth noting that our speculative sentiment index signals for gains. Moreover, the 20-day SMA looks to have broken above the 100-day moving average, a signal of further upside potential.
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Written by Michael Wright, Daily FX Research
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Michael Wright is the author of FX Headlines, Fundamentals vs. Technical’s, Weekly Spotlight, and Forex Trading Weekly
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.