End of GBP/USD range?

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End of GBP/USD range?

10:00 AM (EST) Update

Mr. British Pound has been dancing the most boring consolidation against Ms. USA on the forex dance floor. Could today’s move put an end to the range?

Economic Points

UK Side

The UK is one of the few economies in the world outside of the United States that may actually be looking at a rate hike in the not-too-distant future. This morning, the Brits saw in upside surprise in inflation  at .1% versus an expectation of zero: Core CPI jumped to its highest level in five months, to 1.2% from .8% and higher than the .9% expectation. These numbers are still far below the Bank of England’s 2% inflation target, but do prove encouraging as this is one of the few economies to actually show strength.

Inflation figures are a huge deal for central bank officials since monetary policy adjustments are made primarily to maintain price stability. Rising consumer price levels, as indicated by the headline and core CPI, could convince the central bankers to move closer to hiking interest rates while falling CPI readings could force them to sit on their hands or consider monetary policy easing.

US Side

Talking about CPI, the US will release its own on Wednesday.

For the month of July, both headline and core inflation are expected to have picked up by 0.2%. If so, this would mark the sixth consecutive month of gains for the headline CPI this year.

Keep in mind, however, that energy prices started another leg lower last month when commodities showed more signs of weakness. This probably put a noticeable drag on headline inflation but not so much on the core CPI, which strips out volatile items such as food and energy costs from the calculations.

Despite the numerous fears in the global economy right now, led by major sell-offs in Chinese stocks and commodities, Ms. USA has continued to trade within it’s relatively well-defined range. The massive waves are expected to hit the forex dance floor in September when the summer lazy-head is also over and traders are withdrawn from their beach mode.

For now on a shorter term with US CPI data tomorrow, followed by Fed minutes, this stifled greenback may have the opportunity to run.

Technical Analysis

The GBP/USD pair continues to trade within an upward channel and finally broke above the 38% Fibonacci level at 1.5580 forming a strong Bullish Engulfing pattern. .The pair also broke above the  Ichimoku cloud on last week with a spinning top followed by a bullish candlestick chart pattern which are all solid bullish indicators and could finally put an end to the consolidation and push the pair to dance all the way up to our first bullish target at 1.5890 at 50% Fibonacci retracement level.

Alternative Scenario

If the pair suddenly decides to go nuts and break below the upward channel and pivot level of 1.52, would change our outlook to bearish with 1.50 as first alternative target.

Where to set your stops and limits:

Support Levels Turning Point Resistance Levels
1.50 1.52 1.5890
1.46 1.5580 1.6180

*Important Note: The support and resistance levels are not suitable for all traders and largely depend on your account size, margin and leverage. Book a private lesson to learn how to personalize your account based on our trading guide.