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GBP/USD: Deeper Correction Potential After Inflation Misses Target

GBP/USD: Deeper Correction Potential After Inflation Misses Target

2018-04-18 16:30:00
James Stanley, Strategist
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Talking Points:

- It’s been a brisk reversal of fortunes for the British Pound, as GBP/USD surged up to fresh post-Brexit highs earlier this week, and has already started to pullback after a disappointing inflation print for the month of March. Markets are still looking for a rate hike in May, but the bigger question is how this tempering in inflation may impact BoE expectations for later in the year and 2019.

- With prices now pulling back while displaying bearish characteristics on a shorter-term basis, the door opens for short-side setups, looking for a deeper retracement in the longer-term bullish trend. On a longer-term basis, support points around 1.4145 and 1.4088 remain attractive for longer-term support plays.

- Quarterly Forecasts have just been updated, and the Q2 forecast for GBP/USD is available from the DailyFX Trading Guides Page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.

Want to see how retail traders are currently trading GBP/USD? Click here for GBP/USD Sentiment.

GBP/USD Pulls Back From Fresh Post-Brexit Highs

The British Pound has been on the move in April, and earlier this week we saw a fresh post-Brexit high print in GBP/USD. This move was very much driven by the expectation for higher rates in the UK, and as we near a ‘Super Thursday’ event in early-May, markets are looking for another 25 basis points of adjustment for just the second hike out of the BoE in the past ten years.

Before we get to that rate decision, however, we had March inflation numbers out of the UK to work with. All in all, this was an item of disappointment as inflation printed at 2.5%, missing the 2.7% expectation and marking the second consecutive month of slower price growth in the UK. Rate expectations for May remain high, but this does bring to question the BoE’s stance for the remainder of the year, and in short-order that bullish move in the British Pound posed a deeper pullback.

GBP/USD Four-Hour Chart: Bears Take Control After Inflation Miss

gbpusd four hour chart

Chart prepared by James Stanley

After that impulsive bearish move this morning, a bit of support began to show off of 1.4175, and buyers were soon able to push price action right back to the area of 1.4245, which was a prior point of resistance that we were looking at as potential support for bullish continuation plays. No support showed there during this morning’s sell-off, and with prices now finding resistance in this area, the door is opened for bearish continuation of the shorter-term move.

GBP/USD Hourly Chart: Lower-Lows, Lower-Highs Highlight Deeper Pullback Potential

gbpusd hourly chart

Chart prepared by James Stanley

Longer-Term Trend Remains Bullish

At this point, the longer-term trend remains bullish, and the allure of the above bearish setup is shorter-term in nature; looking for a deeper retracement within this bigger-picture bullish trend. The more proactive question is what might happen upon re-tests of deeper supports at areas such as 1.4145 or 1.4088. Each of these areas can be potential short-side targets on the pair; and if either comes into play, the door may reopen to bullish reversals.

GBP/USD Eight-Hour Chart: Deeper Pullback Potential Before Bigger-Picture Bullish Theme Becomes Attractive

gbpusd eight-hour chart

Chart prepared by James Stanley

To read more:

Are you looking for longer-term analysis on GBP/USD? Our DailyFX Forecasts for Q1 have a section specifically for GBP/USD. We also offer a plethora of resources on our GBP/USD page, and traders can stay up with near-term positioning via our IG Client Sentiment Indicator.

--- Written by James Stanley, Strategist for DailyFX.com

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

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