- The GBP/USD currency pair rallied rather significantly on Wednesday as the CPI number in the United States came out lower than anticipated.
- Because of this, some traders are banking on the idea that the Federal Reserve will step away from its aggressive monetary policy. This is not true, but it does seem to be what the market is hoping for in the short term.
Has Inflation Peaked?
There is a big argument right now as to whether or not the Federal Reserve will raise interest rates aggressively, or if we have already seen “peak inflation.” I think at this point it’s difficult to make that argument because quite frankly there are so many moving pieces. That being said, in the short term it looks like traders are willing to make that bet, and at the end of the day, it is the price that matters.
The size of the candlestick is rather impressive, and it could lead to a bigger move. At this point, I would anticipate that the 1.24 level should be resistant, extending all the way to at least the 1.26 level. It’s once we break above the 1.26 level that I would consider going long because quite frankly I think there are still a lot of concerns out there. The most obvious one is the fact that the Bank of England has already stated it expects the United Kingdom to head into a recession. I think before this is all said and done, it’s likely that we will have fresh sellers coming in to punish this market yet again. After all, trends do not change that quickly, and it should be noted that even with the cooler than anticipated CPI numbers, inflation is still much hotter than the Federal Reserve likes to see. In fact, it’s at roughly 3 times the traditional level that they look for.
If the market were to turn around right here, the 1.20 level is an area where I would expect to see a lot of support, followed by the 1.18 level. I think given enough time, we will probably test those areas, but we may have a day or two of bullish pressure between now and then that could give us an opportunity to “pick up cheap dollars.” Regardless, we are in a downtrend to say the least.
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