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Sharp Drop in UK CPI Pushes GBP/USD Double Top to Breaking Point

Sharp Drop in UK CPI Pushes GBP/USD Double Top to Breaking Point

2013-11-12 10:45:00
Christopher Vecchio, CFA, Senior Strategist
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Talking Points:

- Weakest UK CPI reading in a year at +2.2% y/y.

- British Pound underperforms broadly, but Euro emerges as a top performer alongside Dollar.

- GBPUSD may be on the verge of a more significant top.

To keep up with the European data and news as the week goes forward, be sure to sign up for my distribution list.

Intraday Price Perspective

Sharp_Drop_in_UK_CPI_Pushes_GBPUSD_Double_Top_to_Breaking_Point_body_Picture_1.png, Sharp Drop in UK CPI Pushes GBP/USD Double Top to Breaking Point

A scan of this morning’s best and worst performers via the Strong/Weak app shows that US Dollar strength is building on the back of rising US Treasury yields, but the big losers aren’t the commodity currencies. In fact, after this morning’s data out of the United Kingdom, the British Pound has quickly emerged as the day’s worst performer.

A glance at the charts covering the past six-months shows just how critical of a moment this may be for the GBPUSD:

TECHNICAL ANALYSIS – CHART OF THE DAY

GBPUSD Daily Chart: July 2013 to Present

Sharp_Drop_in_UK_CPI_Pushes_GBPUSD_Double_Top_to_Breaking_Point_body_x0000_i1028.png, Sharp Drop in UK CPI Pushes GBP/USD Double Top to Breaking Point

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The GBPUSD has traded in a sideways channel since September 13, but more notably broke the uptrend off of the July, August, and October lows at the end of last month. Accordingly, with the sideways channel losing horizontal support at 1.5880 – also the last swing low in the July-October uptrend before a lower high was put in – there is reason to believe that a bearish Double Top pattern is beginnig.

Given the medium-term nature of the expected decline – the top took two-months to carve out so we’d expect a decline to develop over the next three- to six-weeks – only a modest depreciation in the GBPUSD should be expected. The range in the Double Top from 1.5880 to 1.6260 results in a final target of 1.5420 by the end of December/early-January.

Here’s a look at the data out of Europe this morning that’s influencing price action:

EURO-ZONE ECONOMIC CALENDAR

Sharp_Drop_in_UK_CPI_Pushes_GBPUSD_Double_Top_to_Breaking_Point_body_x0000_i1029.png, Sharp Drop in UK CPI Pushes GBP/USD Double Top to Breaking Point

UK ECONOMIC CALENDAR

Sharp_Drop_in_UK_CPI_Pushes_GBPUSD_Double_Top_to_Breaking_Point_body_x0000_i1030.png, Sharp Drop in UK CPI Pushes GBP/USD Double Top to Breaking Point

SWISS ECONOMIC CALENDAR

There are no data on the Swiss Franc economic calendar on Tuesday, November 12, 2013.

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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