GBP/USD Forecast: Bears regained control ahead of UK CPI data

The GBP/USD pair failed to sustain above 1.4516-1.4519 (23.6% of 1.5930-1.4079 + 38.2% of 1.5230-1.4079) and dropped to a low of 1.4413 before ending the day at 1.4430 levels. Sterling was offered after BOE’s McCafferty said he ditched his rate hike call due to receding inflationary pressures. He also said the controversial negative rates policy could also be implemented if necessary.

Eyes UK CPI

The UK month-on-month CPI figure is seen contracting 0.7% in January, compared to the 0.1% rise seen in December. The annualized figure is seen rising 0.3%. More importantly, the core inflation growth is seen slowing to 1.3% y/y from December figure of 1.4%. A weaker-than-expected core figure could spell disaster for Pound. The month-on-month figure may not have much impact since the impact of lower energy prices is already priced-in.

Moreover, weaker core figure would add credence to McCafferty’s decision to ditch the rate hike call, and thus weigh over Pound. On the other hand, a better-than-expected figure could help Sterling rise, however, the upside could be capped around 1.4516-1.4519 (23.6% of 1.5930-1.4079 + 38.2% of 1.5230-1.4079) on account of Brexit fears.

Technicals – Eyes 1.4350

• Sterling’s repeated failure to take out trend line resistance on the daily chart (marked by circles) followed by a failure to sustain above 1.4516-1.4519 (23.6% of 1.5930-1.4079 + 38.2% of 1.5230-1.4079) on Monday indicates the currency pair is heading towards strong support at 1.4351 (23.6% of 1.5230-1.4079).

• A break below 1.4351 could see the spot target 1.43 levels.

• On the higher side, only a daily close above 1.4519 would open doors for a rally to 1.4668 (Feb 4 high).

EUR/USD Analysis: Strong support at 1.1126

The EUR/USD pair fell for the second day, tracking the corrective rally in the risk assets across the globe. The spot hit a low of 1.1128, before recovering to 1.1184 levels. However, the Asian equities including Chinese shares advanced today as well. Consequently, the EUR/USD pair fell back to 1.1155 levels.

German Zew survey could be ignored

The German Zew survey could be ignored today as the common currency remains at the mercy of the broader market sentiment. Moreover, the EUR/USD pair stopped responding to the economic data sets even since the ECB pushed the rates to negative territory (which made EUR a funding currency). Consequently, the broader market sentiment overshadows the economic data out of Eurozone.

Technicals – Trend line support at 1.1126

• Euro sees a strong support at 1.1126 (rising trend line drawn from March low to April low and extended).

• The hourly RSI’s turn higher form the oversold territory indicates the currency pair could re-test 1.1184. A break higher would expose 1.1208 (hourly 50-MA).

• On the other hand, an hourly closing below 1.1126 could strengthen bears and trigger a sell-off to 1.1050 levels.