The GBPUSD looks poised to establish a new downtrend following yesterday's fakeout, which was prompted by the U.S. CPI report for the same period. This is owing to the strengthening of the greenback, which is examined in greater detail in our latest EURUSD analysis.
The Office for National Statistics recorded a sharp jump in UK inflation earlier today. According to the findings of the report, consumer prices rose by 3.2 per cent in August, beating the initial market forecasts. This triggered a minor pullback on the GBPUSD.
As shown on the 4H chart above, the price action is trying to establish the long-awaited bearish reversal for the third time in the last couple of weeks. This is happening following yesterday's fakeout, which was prompted by a temporary upsurge in market enthusiasm following the August CPI numbers in the U.S.
Most notably, the price action reversed from the lower boundary of the previous ascending channel, which is currently serving as a prominent resistance. This is indicative of rapidly rising bearish bias, also confirmed by the recent crossover on the MACD's histogram.
Before the downtrend can resume heading lower, however, the price action may continue to consolidate around the 23.6 per cent Fibonacci retracement level at 1.3839 and the 38.2 per cent Fibonacci at 1.3794 in the immediate future. This is bolstered by the fact that the former is about to be crossed by the 50-day MA (in green), whereas the latter is converging with the 100-day MA (in blue).
Once the currently developing minor pullback to the upper limit of this consolidation range is completed, the price action would be ready to resume falling towards the 61.8 per cent Fibonacci at 1.3720.
The Consumer Price Index (CPI) rose to 3.2 per cent, the highest level in 9 years, beating the preliminary forecasts, which were anticipating a more moderate growth of 2.9 per cent. This marks a sharp increase in headline inflation from a month prior when the index was recorded at 2.0 per cent.
This performance is unsurprising given the robust growth in employment in the UK that was recorded over the same period. It also underpins persistently strong consumer demand in Europe, which is opposed to the current trends in the Asian region.