GBP/USD is turning lower after today’s U.K. inflation release!
In case you missed it, the U.K.’s annual inflation came in at 8.7% in May, unchanged from April’s rate but higher than the expected 8.4% consumer price growth.
It also marked the fourth consecutive month that annual prices rose more than the markets had expected.
Not good for the Bank of England (BOE), which is trying its best to stabilize prices after inflation peaked at 11.1% in October.
GBP/USD 15-min Forex Chart by TV
The prospect of further BOE rate hikes initially boosted GBP against its major counterparts.
But some traders are now speculating that Governor Bailey and his team won’t have much choice but to raise interest rates even higher, which also ups the odds of a U.K. recession. Yipes!
GBP/USD, which popped up to the 1.2800 psychological handle, has now come down to the 1.2760 levels.
Does this mean that Cable is headed for new intraday lows?
It doesn’t help GBP bulls that the 1.2800 psychological level is not far from the 15-minute chart’s 200 SMA as well as a trend line resistance that’s been around all week.
What’s more, a move to 1.2800 kinda tracks with half of GBP/USD’s daily average volatility.
Between expectations of a possible U.K. recession and anticipation of at least some hawkishness from Powell’s testimony later, I’m betting on GBP/USD to extend its intraweek downtrend.
I’m looking at entries between the 1.2775 – 1.2780 trend line and 200 SMA resistance area while aiming for GBP/USD’s weekly lows near today’s S1 (1.2720) levels.
What do you think? Will GBP/USD extend its downtrend?
Or will risk-taking and hawkish BOE expectations push GBP/USD to new weekly highs?
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