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GBPUSD Under Pressure Ahead of the U.K. Inflation Report
Written by article default Monday, 11 October 2010 08:23
Fundamental OutlookConsumer prices in Great Britain are expected to remain unchanged at 3.1 percent for the month of September from a year ago. This report is of particular importance due to the fact that inflation is used by the Bank of England in making rate decisions. As of late, prices have remained stubbornly above the central bank’s target, and has lead policy maker Andrew Sentance to dissent against the majority and call for a rate hike. Thus, an unexpected advance in the headline reading will raise further concerns for policy makers as they weigh both upside and downside risks.
Indeed, the inflation report precedes the Bank of England Minutes, which will be released next week, October 20th. Andrew Sentance is expected to push for an increase of twenty basis points onto the BoE’s key overnight lending rate. There is a slight possibility that market participants will witness a three way split as Adam Posen recently resurfaced talks of quantitative easing. Meanwhile, other members of the MPC may continue their wait and see approach. All in all, tomorrow’s inflation report may set the stage of GBP price action as the single currency faces a week of major economic releases that may dictate price action for the near term.
Technical Outlook
GBPUSD Daily Chart
GBPUSD: The pair has worked its way into an ascending channel which has remained intact since the beginning of September. At the same time, our moving average crossover (4, 9, 18) has signaled for increases on September 17th, and has yet to change direction. It is also worth noting that our speculative sentiment index now stands at 1.08 and signals for declines. Going forward, a break below the channel will expose downside risks towards 1.55.
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