UK CPI comes lower than expected – Pair can fall further within a-b-c sequence

UK CPI has just been released, and the numbers came in at 2.6%, down from 2.8%. The market was expecting 2.7%.

However, we are not seeing any meaningful reaction lower this morning in GBPUSD. Usually, this kind of reading would cause much more weakness for the pound, but the reason is that these figures are from June, while in July, as you know, crude oil prices have been trading much higher. So the market is more focused on what the future may bring rather than past data.

We are still tracking this ongoing ABC decline based on two interpretations. It could be a wave D headed toward 1.3300 or even lower, or it could possibly be an ABC correction against the previous five-wave rally. However, even this scenario suggests there can still be room for a 61.8%, or even a 78.6%, retracement.

So after some rally in the near term, we may still experience more short-term weakness in the Pound.