This morning, the GBPUSD leapt higher by 20 pips as the latest ONS inflation figures showed that annual inflation rose by 0.7% vs the 0.6% anticipated by economists. The GBPUSD maintains a bullish uptrend following the inflation report and might be able to trade above the November 11 high of 1.3311, triggering a push to 1.34 in the days ahead.
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UK inflation turns higher, lowering the pressure on BoE
At the lowest level, seen just three months ago, annual inflation almost dipped below zero per cent. Having an economy in deflation is something that all central banks try to avoid. Therefore, on November 5, the Bank of England expanded its quantitative easing by £150bn over the course of 2021.
Today’s inflation figures were better than expected and headed in the right direction, which coincides with the increased risk-appetite following the Pfizer vaccine candidate and Moderna vaccine. This has encouraged investors to buy the British Pound against the American Dollar. It is also lowering the pressure on the Bank of England (BoE) to add more monetary stimulus.
Goodbye Dominic Cummings, hello GBP bulls
The resignation of Dominic Cummings is also encouraging for traders hoping for a trade deal between the EU and UK by the end of the year. Officially, the government said the departure of Dominic Cummings will have no impact on the trade talks. However, Mr Cummings was a key player for the UK’s strategy, and I think the internal struggles we see at Number 10 are coming from the fact that the hard Brexit strategy the UK has been trying to impose is just not working with the EU. I think Cummings departure marks a shift towards a softer approach. Also, if the UK indeed leaves with no trade deal, then Cummings would already have left government and will save face.
My personal view is that there is an overwhelming risk of a hard Brexit and that the market is not pricing this into the British Pound (GBPUSD), or in the EURGBP pair. However, for now, investors are happy to sell the Dollar and buy the GBP.
GBPUSD technical outlook
In the short-term, the Dollar is losing against most currencies, and the same is true in GBPUSD. The short-term trend is upwards above the 1.3081 level, which is a price level just below the November 12 low of 1.3104. The only reason for not working with the November 12 low is because the GBPUSD is prone to produce false breakdowns, which can spike traders out from their positions.
With the trend of the price being upwards above 1.3081, I suspect traders will be happy to buy dips in the GBPUSD, and I think they will do so in the 1.3081 to 1.3152 interval. They might also try to trigger a break to the November 11 high of 1.3311, and this could trigger a price rise to the psychological level of 1.34 in the days ahead. However, break to the November 11 high is currently not offering a good risk-reward ratio.
What is your outlook for the GBPUSD? Interact with Alex on Twitter at @AlexFX00.
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1. Register for an account or log in to your existing account
2. Open MT4 either on your desktop or mobile
3. Search for GBPUSD in the market watch or symbols window
4. Choose your position size
5. Hit buy or sell, and then confirm the trade
GBPUSD six-hour chart
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