GBP/USD Buyers Gain Momentum as Monthly Inflation Accelerates

Market Overview

Despite an unexpected economic contraction in the UK for October, coupled with a slower quarterly growth rate, stronger-than-expected monthly inflation has boosted speculation that the Bank of England (BoE) will hold rates steady in December. Meanwhile, the US dollar has retreated to its weekly low following its recent rally, driven by post-Trump celebration momentum. This suggests a pause among dollar buyers, which in turn supports a short-term recovery in GBP/USD.

Technical Analysis

On the two-hour chart, GBP/USD is attempting a corrective rebound after touching the lower boundary of the descending channel that has been in play since October 2023. Buyers are currently facing immediate resistance at the 1.26890 level, coinciding with the start of the European session. A successful breach of this level could pave the way for further gains, with subsequent targets set at 1.27098, 1.27206, and 1.27362, all of which align with extended Fibonacci levels from the recent downward swing. If bullish momentum persists, GBP/USD may rally towards the critical resistance at 1.27654, a level that could prove pivotal in determining the next directional move.

Conversely, if sellers regain control, the pair could see a pullback, with initial support levels at 1.26598 and a further dip towards 1.26126. These support levels represent key areas for buyers to defend in order to maintain the recent upward bias.

Oscillators Confirmation

Momentum oscillators reinforce the bullish outlook for now. The RSI is trending upwards, suggesting increasing buying interest, although it has yet to reach overbought territory. Meanwhile, the MACD has turned positive, with the histogram above the signal line, signaling growing bullish momentum. The mixed moving averages, with short-term moving averages beginning to turn upwards, suggest a gradual shift towards positive momentum, but more strength is needed to confirm a broader trend reversal.

Key Support and Resistance Levels

Resistance Levels:

• 1.27654 – Critical level for determining further upside.
• 1.27362 – Extended Fibonacci level, key to further bullish expansion.
• 1.27206 – Minor resistance, within extended Fibonacci area.
• 1.27098 – Immediate resistance to overcome for continued bullish momentum.

Support Levels:

• 1.26598 – Initial support level, key for maintaining the current bullish bias.
• 1.26126 – Secondary support, critical to prevent further downside.

Key Events to Watch

Following the release of UK inflation data on Wednesday morning, which revealed that October’s inflation growth surpassed expectations, market participants will be closely monitoring Federal Reserve member Bowman’s upcoming speech. Investors are also eyeing the 20-year US Treasury bond auction, which may impact broader market sentiment. Additionally, recent volatility in the dollar has been influenced by President Trump’s new cabinet announcements. If these events generate a hawkish tone from the Fed or signal stability in the dollar, they may cap GBP/USD gains and shift sentiment back towards the downside.

Conclusion

GBP/USD is showing short-term bullish momentum, driven by stronger UK inflation data and dollar weakness. However, a sustained break above key resistance levels is needed to confirm a broader uptrend. Upcoming speeches and US bond auctions could shift the balance, making the outlook dependent on fundamental developments in the coming sessions.