At the beginning of today's European session, after the Office of National Statistics of Great Britain was presented a report on consumer inflation, the pound rose sharply in the foreign exchange market. The consumer price index (CPI) reflects the dynamics of retail prices and is a key indicator of inflation. The data show that the inflationary pressure shows almost no signs of slowing down.
According to the data presented, consumer inflation in the UK in August (in annual terms) was 2.9% (forecast was + 2.8% and + 2.6% in July).
The central bank of Great Britain is in a difficult situation. On the one hand, the Bank of England has faced a problem of weak economic growth and wages, and on the other hand, with rising prices, which are on the rise due to the sharp drop in the British pound that began after the referendum on the withdrawal of the country from the EU in June 2016.
Inflation significantly exceeds the target level of the Bank of England, which is 2%. At the same time, salaries grow much more slowly, not keeping up with inflation and cutting the level of consumer spending. Inflationary pressure, which affects British buyers, already has a negative impact on the UK economy, whose growth is determined primarily by internal factors.
On Wednesday (08:30 GMT) data on wages and unemployment will be presented, and on Thursday the meeting of the Bank of England will be held. At 11:00 (GMT) also on Thursday will be published a decision on the interest rate in the UK.
It is expected that the leaders of the Bank of England will leave the key interest rate unchanged at 0.25%. Some economists expect that only early next year, the Bank of England will gradually increase the cost of borrowing.
On Thursday, especially at 11:00 (GMT), a sharp increase in volatility is expected not only in pound trade, but also throughout the currency market, which must be taken into account when making trading decisions.
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Technical Analysis
The GBP / USD pair is almost continuously growing over the course of six trading sessions.
After the release of inflation data, the pair GBP / USD today broke through the resistance levels 1.3210 (Fibonacci level 23.6% correction to the fall of the GBP / USD pair in the wave, which began in July 2014 near the level of 1.7200), 1.3260 (annual and August high) and continues grow in the ascending channels on the daily and weekly charts.
The upper limit of the ascending channels runs near the mark 1.3390, just below the level of 1.3460 (the July and September highs of 2016 reached after the referendum on Brexit).
The indicators OsMA and Stochastics on the daily, weekly charts turned to long positions.
In case of consolidation above the level of 1.3210, further growth is likely. The alternative scenario involves breakdown of the support level of 1.3210 and a further decline in the pair GBP / USD to support level 1.2980 (EMA200 and the bottom line of the uplink on the 4-hour chart).
A decline below support level 1.2870 (EMA200 on the daily chart) will strengthen the risk of a GBP / USD return in a downtrend.
Support levels: 1.3260, 1.3210, 1.3100, 1.3030, 1.2980, 1.2910, 1.2870
Resistance levels: 1.3300, 1.3390, 1.3460
Trading Scenarios
Sell Stop 1.3240. Stop-Loss 1.3310. Take-Profit 1.3210, 1.3100, 1.3030, 1.2980, 1.2910, 1.2870
Buy Stop 1.3310. Stop-Loss 1.3240. Take-Profit 1.3360, 1.3400, 1.3460, 1.3500
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