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Next GBP Downturn Ready as ST Oversold Readings Cleared after CPI

Next GBP Downturn Ready as ST Oversold Readings Cleared after CPI

Christopher Vecchio, CFA, Senior Strategist

Talking Points:

- GBPUSD seen weak below 1.6656 into 1.6555.

- GBPJPY has best reversal potential if at all.

- Have a bullish (or bearish) bias on the British Pound, but don’t know which pair to use? Use a GBP currency basket.

The British Pound gapped higher to start the week after Bank of England Governor Mark Carney issued a hawkish statement over the weekend, but those relatively higher prices in the GBP-crosses are nothing more than a memory at this point. Governor Carney's hawkish tone may be in check after the release of the July UK Consumer Price Index.

Governor Carney's hawkish tone was formed around the idea that the BoE would raise interest rates whether or not real wage growth was positive, should other sectors of the economy warrant such action, good (labor market tightness) or bad (erhm, looking at you, housing).

However, with UK consumer prices sliding back faster than anticipated, this may be a sign that consumers, faced with diminished purchasing power, have reined in spending. Lower inflation would suggest that demand is outstripping supply at a weaker rate; growth may be dampened.

GBPUSD is at an important crossroads then near $1.6656 following the UK CPI report, as the July US Consumer Price Index will be released today at 12:30 GMT. Several of the GBP-crosses are on the ropes this morning, aside from GBPUSD: GBPCHF, EURGBP, and GBPJPY.

See the video above for technical considerations for the GBP-complex and what we'll be looking to in the next few days as the next GBP downswing may be looming.

Read more: 5 Reasons EUR/USD is Coiling - GBP/USD Waits for UK, US CPIs on Tues

--- Written by Christopher Vecchio, Currency Strategist

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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