Home Tools GBP/USD Price Drops on Higher UK Inflation, 1.1985 Critical Support

GBP/USD Price Drops on Higher UK Inflation, 1.1985 Critical Support

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  • The GBP/USD pair could resume its leg higher as long as it stays within the ascending pitchfork’s body.
  • A new higher high activates further growth.
  • Invalidating its breakout through the downtrend line may announce a new sell-off.

The GBP/USD price was trading in the red at 1.2004 at the time of writing. Before jumping higher, the price returned to test the near-term downside obstacles.

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As you already know, the pair rebounded and recovered after its massive drop as the Dollar Index developed a corrective phase. DXY’s deeper drop may force the greenback to lose more ground versus its rivals.

In the short term, the USD drops slightly ahead of the FOMC. The Fed is expected to increase the Federal Funds Rate from 1.75% to 2.50% next week. After its strong growth, the Dollar Index was expected to face profit taking.

Fundamentally, the UK and the US data came in mixed yesterday. Today, the UK Consumer Price Index reported a 9.4% growth versus the 9.3% expected, while the Core CPI rose by 5.8%, matching expectations.

In addition, the PPI Input rose by 1.8% compared to the 1.2% estimated, while PPI Output surged by 1.4%, beating the 1.0% forecasted. Later, the Canadian inflation figures could have a big impact on the USD.

Also, the US Existing Home Sales could bring life to the GBP/USD pair today. The indicator is expected to drop from 5.41M to 5.37M.

GBP/USD price technical analysis: Ranging around recent tops

GBP/USD price

As you can see on the 4-hour chart, the price is trapped between 1.2033 and 1.1985 levels. Breakout of the range could bring new opportunities. The GBP/USD pair jumped above the downtrend line and continues to stay above the ascending pitchfork’s lower median line (LML), which acts as a dynamic support.

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As long as it stays above the near-term downside obstacles, the bias remains bullish in the short term. Still, only a new higher high could activate further growth, at least towards the median line (ml).

On the other hand, a new lower low, a valid breakdown below 1.1985, could activate a new sell-off. Invalidating the breakout through the downtrend line signals that the swing higher ended and that the GBP/USD pair could come back down.

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