GBP/USD Buyers Gain Momentum Ahead of US Inflation Data

Market Overview

On Wednesday, the US Dollar Index showed a cautious retreat as traders awaited the release of the US Consumer Price Index (CPI) data. Meanwhile, the British pound exhibited resilience, recovering from earlier losses spurred by disappointing inflation figures from December. The rebound in the pound’s value reflects optimism that a potential easing of high interest rates could provide relief to the UK’s struggling economy.

Technical Analysis

The GBP/USD pair is demonstrating signs of recovery on the 4-hour chart after forming a W-shaped pattern near the lower Bollinger Band. This indicates a short-term bullish correction within an overarching bearish trend, as the price remains below the 100-period moving average. Buyers have successfully driven the pair toward the key resistance level at 1.22498, which represents the neckline of the W-pattern.

Should the price break above this resistance, the pattern would be validated, potentially paving the way for further gains toward 1.22803, 1.23190, and 1.23618. Momentum indicators provide mixed signals; the RSI remains neutral, while the MACD histogram displays a gradual upward trajectory, supporting a mild bullish sentiment.

Conversely, failure to overcome the 1.22498 level may expose the pair to renewed selling pressure. Support levels to watch include 1.22070 and the critical 1.21378, a breach of which could invalidate the corrective bullish scenario and reignite the broader downtrend.

Fundamental Drivers

The US CPI report, due later today, holds significant implications for market sentiment. Recent labor market data, which highlighted robust job creation, underscored the resilience of the US economy. This has led to a recalibration of expectations surrounding further rate cuts by the Federal Reserve. Should inflation figures come in higher than forecast, the dollar could regain strength, applying downward pressure on the GBP/USD pair.

In contrast, the pound’s recent uptick stems from diminishing expectations of further aggressive monetary tightening by the Bank of England. Softer inflation in December has fueled hopes of economic stabilization, fostering renewed interest among buyers. Nonetheless, concerns about the UK’s economic fragility persist, which may limit the pound’s upside potential in the near term.

Key Events to Monitor

• US CPI Data (Wednesday): Traders anticipate insights into inflation trends following last week’s strong nonfarm payroll report.
• UK Economic Indicators: Subsequent data releases could influence BoE rate expectations, further shaping the GBP/USD outlook.

Conclusion

GBP/USD is navigating a corrective bullish phase, with immediate resistance at 1.22498 being pivotal for further upside potential. Breaking this level could validate a W-pattern and target higher resistances at 1.22803 and 1.23190. Conversely, failure to maintain bullish momentum risks a return to 1.22070 and 1.21378 support levels, underscoring the pair’s susceptibility to broader market dynamics driven by US inflation data.

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