I think we will continue to see more of a “fade the rally” market if we don’t break down directly.
- The GBP/USD currency pair rallied initially on Tuesday but gave back gains in the same general vicinity where we had seen selling pressure on Monday.
- Furthermore, the 50-Day EMA sits just above these two shooting stars, so it suggests the me that we are going to continue to see plenty of selling pressure overall.
CPI Numbers to Bring Noise
The 1.20 level underneath is significant support, and of course is a large, round, psychologically significant figure. In that area, I would anticipate that we should see a certain amount of support, as well as psychology, come into the picture. The fact that Wednesday is the CPI number coming out of the United States does suggest that we could hear quite a bit of noise, and perhaps a little bit of clarity when it comes to the future direction of the Federal Reserve. Ironically, the Federal Reserve has been telling people for a while that they are going to be extraordinarily aggressive to fight inflation, even though the markets have been arguing this point with the Fed.
Once we get the CPI number that comes out during the day on Wednesday, it’s possible that we either get a number that is hotter than anticipated or one that comes in under. If it’s hotter than anticipated, it’s likely that the US dollar will strengthen due to the perception of a more hawkish Federal Reserve is more likely than not going to be positive for the greenback. Core CPI month over month is anticipated to come out of 0.5%, so anything bigger than that will almost certainly send this pair lower.
What is also worth noting is that the Bank of England has already stated that they are expecting England to go into a recession, so the British pound will probably continue to be a bit soft as a result. Either way, this is a market that has been drifting for a while, and down to the lower left-hand corner of the chart. I think we will continue to see more of a “fade the rally” market if we don’t break down directly. If that were to be the case, it should be thought of as offering value for the US dollar. Either way, I have no real interest in buying the British pound until we break above the 1.26 level.