GBP/USD: UK inflation accelerated sharply. Trading recommendations
And today the British pound was among the leaders of decline, including against the dollar. It weakened sharply after the publication (at 06:00 GMT) of the UK Office for National Statistics report with fresh inflation data. At the beginning of today's European session, the GBP/USD pair fell sharply, reaching an intraday low of 1.2371, which is 121 points below today's opening price of 1.2492. According to this report, in April, the annual inflation rate in the UK accelerated sharply to a maximum in more than 40 years, amounting to 9% against 7% in March. The core consumer price index (Core CPI), which excludes volatile food and energy prices, rose 6.2% year-on-year in April after rising 5.7% in March.
Soaring wages and energy prices are pushing consumers' costs to alarming levels, weakening their purchasing power, economists say, not excluding the onset of stagflation (when the economy slows down as inflation rises). At the same time, the Bank of England will have to raise interest rates less aggressively, lagging behind inflation. Some economists believe that inflation in the UK could rise to 10% in October due to higher energy tariffs, higher purchase prices and higher wages, while expectations about the prospects for monetary policy of the Bank of England remain the same: two more increases in the key rate of the Bank of England by 25 basis points this year.
Thus, the dynamics of the decline is accelerating, and the GBP/USD is moving towards the local support levels 1.2085, 1.2000. Earlier, we wrote that “more distant targets for the GBP/USD decline are located at local support levels 1.2250, 1.2085, 1.2000 (the low in the GBP/USD decline wave that began in July 2014 near the level 1.7200)”. It looks like our scenario is coming true.
In an alternative scenario, and after the breakdown of the resistance levels 1.2630, 1.2648 (EMA200 on the 4-hour chart), GBP/USD will resume growth.
However, only growth into the zone above the resistance levels 1.3260 (EMA200 on the daily chart), 1.3340 (EMA200 on the weekly chart) can turn the tide, increasing the likelihood of GBP/USD growth into the zone of a long-term bull market - above the key resistance level 1.4580 (EMA200 on the monthly chart and the Fibonacci 50% retracement to the GBP/USD decline in the wave that began in July 2014 near the level 1.7200).
Support levels: 1.2360, 1.2165, 1.2100, 1.2085, 1.2000
Resistance levels: 1.2630, 1.2648, 1.2785, 1.3000, 1.3155, 1.3210, 1.3260, 1.3340
Sell Stop 1.2345. Stop Loss 1.2450. Take-Profit 1.2300, 1.2200, 1.2165, 1.2100, 1.2085, 1.2000
Buy Stop 1.2450. Stop Loss 1.2345. Take-Profit 1.2500, 1.2600, 1.2630, 1.2648, 1.2785, 1.3000, 1.3155, 1.3210, 1.3260, 1.3340