GBP/USD Forecast: Bulls eye Brexit headlines after hot UK inflation data

GBP/USD has gained traction in the early European session on Wednesday.
Annual CPI in the UK jumped to 4.2% in October from 3.1%.
Stong chance of BoE rate hike bets remains in place, eyes on Brexit headlines.

Eren Sengezer FXStreet

GBP/USD has edged higher in the early European session on Wednesday with the latest data from the UK revealing that inflation was stronger than expected in October.

The pair seems to be struggling to push higher, however, suggesting that investors are focused on Brexit headlines rather than the market pricing of a strong probability of a Bank of England (BoE) rate hike in December.

The UK's Office for National Statistics (ONS) announced on Wednesday that the Consumer Price Index (CPI) in October jumped to 4.2% on a yearly basis from 3.1% in September. Additionally, the Core CPI, which excludes volatile food and energy prices, climbed to 3.4% in the same period, surpassing the market expectation of 3%. After these readings, the CME Group BoEWatch Tool shows that markets are still pricing in a 67.5% chance of a 20 bps hike before the end of the year.

Although GBP/USD clings to modest daily gains around mid-1.3400s, the lack of bullish momentum shows that bulls remain hesitant to commit to additional gains in the absence of Brexit-related headlines.

Unless the UK takes the possibility of triggering Article 16 off the table, the British pound's upside is likely to remain capped by technical levels.

In the second half of the day, October Housing Starts and Building Permits will be featured in the US economic docket but will market participants will keep a close eye on Fedspeak.

GBP/USD Technical Analysis

GBP/USD continues to trade above the descending regression channel coming from late October. Although this could be seen as an encouraging sign for bulls, the Relative Strength Index (RSI) indicator on the daily chart is moving sideways near 50, confirming the pair's indecisiveness in the near term.

Initial resistance seems to have formed in the 1.3460/70 area (50-period SMA, static level) ahead of 1.3500 (psychological level). In case buyers manage to flip the latter into support, 1.3570 (static level) could be seen as the next target on the upside.

Supports are located at 1.3420 (20-period SMA), 1.3400 (psychological level) and 1.3360 (static level, 2021 lows, mid-line of the regression channel).

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Author

Eren Sengezer

FXStreet

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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