Double-Top Forms Ahead of UK CPI Data

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The GBP/USD is also reacting to the political situation in the UK. Recent polling data shows that Lizz Truss has a 10% approval rating.

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Bearish view

Sell the GBP/USD pair and set a take-profit at 1.1100.
Add a stop-loss at 1.1400.
Timeline: 1-2 days.

Bullish view

Set a buy-stop at 1.1380 and a take-profit at 1.1450.
Add a stop-loss at 1.1280.

The GBP/USD price continued consolidating as the market waited for the upcoming UK consumer inflation data. It was trading at 1.1300 on Wednesday morning, which was lower than this month’s high of 1.1500.

UK inflation data ahead

Inflation is an important economic data because it forms a key pillar for a central bank’s dual mandate. Therefore, the GBP/USD price will likely react to the upcoming UK inflation data.

Economists believe that inflation continued rising in September as prices for energy and food remained at an elevated level. The median estimate among economists is that the broader inflation rose from 9.9% in August to 10.0% in September.

Core inflation, which does not include the volatile food and energy prices, is expected to have risen from 6.3% to 6.4. The ONS will also publish the latest producer price index (PPI) data. Analysts expect that PPI input rose by 18.8% while PPI output fell to 15.7%.

Most experts believe that UK’s inflation will rise further in the coming months due to the recent decisions by Jeremy Hunt. In his first statement as Chancellor, Hunt said that the government will reduce its interventions in the energy market.

As such, there is a likelihood that inflation will rise above 15% in 2023. In a report, analysts at EY said that inflation will likely return to the BoE target of 2.0% in 2024.

With inflation at an elevated level, analysts expect that the BoE will continue tightening in the coming months. This could see it deliver a jumbo rate hike of 100 basis points in November.

The GBP/USD is also reacting to the political situation in the UK. Recent polling data shows that Lizz Truss has a 10% approval rating. This means that there is a high probability that she will not complete her term.

GBP/USD forecast

The GBP/USD pair has been crawling back in the past few days after it declined to 1.0921 on October 12. This momentum has lost steam in the past few days as it struggled moving above the important resistance level at 1.150. The pair seems to be in the process of forming a double-top pattern, which is usually a bearish sign. At the same time, the Relative Strength Index (RSI) has dropped from the overbought level.

Therefore, the pair will likely resume the bearish trend as bears target the neckline of the double-top at 1.0920. The stop-loss of this trade will be at 1.1500.

GBP/USD