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GBP/USD Forecast: Bearish Series Remains in Play Ahead of U.K. CPI

GBP/USD Forecast: Bearish Series Remains in Play Ahead of U.K. CPI

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British Pound Talking Points

The British Pound pares the decline from earlier this morning as the U.K. House of Commons votes 324 to 298 to reject an amendment to the Brexit bill, but recent price action raises the risk for a further decline in GBP/USD as the exchange rate carves a bearish series.

Image of daily change for major currencies

GBP/USD Forecast: Bearish Series Remains in Play Ahead of U.K. CPI

Image of daily change for GBPUSD

The British Pound outperforms its major counterparts even as the U.K. employment report showed an unexpected slowdown in core Average Weekly Earnings, and GBP/USD may continue to gain ground over the next 24-hours as U.K. Prime Minister Theresa May secures a key vote in parliament.

At the same time, updates to the U.K. Consumer Price Index (CPI) are anticipated to show the headline and core reading for inflation holding steady in May, and signs of sticky price growth may encourage the Bank of England (BoE) to further normalize monetary policy in 2018 as ‘an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to its target at a conventional horizon.’

As a result, Governor Mark Carney and Co. may increase their efforts to prepare U.K. households and businesses for higher borrowing-costs at the next meeting on June 21, but indications of easing price pressures may produce headwinds for the British Pound as market participants scale back bets for an imminent BoE rate-hike.

Nevertheless, near-term outlook outlook for GBP/USD remains tilted to the downside as the Relative Strength Index (RSI) extends the bearish formation from earlier this year, with the pair still at risk of making a run at the November-low (1.3039) as it carves a series of lower highs & lows.

GBP/USD Daily Chart

Image of GBPUSD daily chart
  • Failure to close above the 1.3440 (38.2% expansion) to 1.3460 (50% expansion) region raises the risk for a further decline in GBP/USD, with a close below 1.3370 (78.6% expansion) opening up the Fibonacci overlap around 1.3280 (23.6% expansion) to 1.3300 (100% expansion).
  • A break of the May-low (1.3204) brings up the 1.3100 (38.2% retracement) handle, with the next region of interest coming in around 1.2950 (23.6% expansion).

For more in-depth analysis, check out the Q2 Forecast for the British Pound

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.

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