TheNews

Trading the News: U.K. Consumer Price Index (CPI)

A material pickup in both the headline and core U.K. Consumer Price Index (CPI) may sap the bearish sentiment surrounding the British Pound and spark a larger recovery in GBP/USD especially as a growing number of Bank of England (BoE) officials see a greater threat of overshooting the 2% target for inflation.

What’s Expected:

Why Is This Event Important:

Even though the BoE argues ‘a majority of members expect to support a further cut in Bank Rate to its effective lower bound,’ heightening price pressures may keep the Monetary Policy Committee (MPC) on the sidelines throughout the remainder of the yearas Deputy Governor Jon Cunliffe warns the next quarterly inflation due out on November 3 will reflect the sharp decline in the exchange rate. In turn, GBP/USD may face a more meaningful correction as the BoE looks poised to endorse a wait-and-see approach ahead of 2017, but the broader outlook for the sterling remains tilted to the downside as the risk of a ‘hard Brexit’ clouds the outlook for growth and inflation.

How To Trade This Event Risk

Bullish GBP Trade: Headline & Core CPI Pick Up in September

• Need green, five-minute candle following the print to consider a long GBP/USD trade.
• If market reaction favors long sterling, buy GBP/USD with two separate position.
• Set stop at the near-by swing low/reasonable distance from entry; look for at least 1:1 risk-to-reward.
• Move stop to entry on remaining position once initial target is hit, set reasonable limit.

Bearish GBP Trade: U.K. Inflation Report Falls Short of Market Forecast

• Need red, five-minute candle to favor a short GBP/USD trade.
• Implement same setup as the bullish British Pound trade, just in reverse.

Potential Price Targets For The Release
GBP/USD Daily

• Broader outlook for GBP/USD remains tilted to the downside as price & the Relative Strength Index (RSI) preserve the bearish trends carried over from the previous months, but the failure to close below 1.2100 (61.8% expansion) raises the risk for a larger correction in the exchange rate; will keep a close eye on the RSI, with a move with a move out of oversold territory (above 30) accompanied by a break of the bearish formation opening up the first topside target around 1.2360 (50% retracement) followed by 1.2460 (61.8% expansion).
• Interim Resistance: 1.2920 (100% expansion) to 1.2950 (23.6% expansion)
• Interim Support: 1.1905 (2016-low) and 1.2100 (61.8% expansion)

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