GBP/USD outlook: Upbeat inflation and labor data support sterling for break

GBP/USD

Cable remains within choppy and narrowing range on Thursday, despite strong UK inflation and labor data, as well as dovish tone from Fed’s chief Powell.

Improving conditions in the UK labor sector suggest that economic recovery is gaining pace, with expectations of lifting almost all Covid-19 restrictions on July 19, expected to further boost the sentiment.

The inflation in the UK rose in June to the highest since August 2018, adding to signals that the BoE may take an action earlier than expected, although the central bank would assess if inflationary pressure is transitory, before calling on raising interest rates and start tightening money supply to the economy.

Daily chart shows near-term action holding within a triangle and investors await for direction signal on the break of either side of the pattern.

Positive fundamentals support bullish scenarios on break of the upper triangle boundary, while daily technical studies are improving, but still show mixed setup.

Initial positive signal could be expected on the sustained break above 20DMA (1.3856), while lift above triangle’s upper boundary (1.3887) would expose pivotal barriers at 1.3929/37 (Fibo 38.2% of 1.4249/1.3731 / 100DMA) violation of which would add to reversal signal and expose key 1.40 resistance zone.

Near-term action is expected to remain biased higher while above 10DMA (1.3838), while break here and below triangle support (1.3810) would be bearish.

Res: 1.3887; 1.3910; 1.3929; 1.3937.
Sup: 1.3838; 1.3828; 1.3786; 1.3755.

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