GBP has made a sharp turn around from being the top performer in the first half of 2014 to a one of the weakest currency at the moment. It has been pressured by a leveling off in economic data as well as some dis-inflationary pressure. It is also dragged down by increasing prospects of Scottish independence of the UK. Tomorrow’s Bank of England inflation report will be key. If the bank continues to expect declining inflation the GBP might continue its decline, but the BoE also has the chance to give the pound some reprieve if it can suggest a rate hike in early 2015. Let’s take a look at the GBP/USD and GBP/JPY charts ahead of the key BoE inflation report.
GBP/USD is approaching the 50% retracement level of the 2012-2014 rally around 1.60, which is also where the 200-week SMA resides. We should find support here, but if the reaction to the BoE report pulls cable below 1.60, we can expect some elbow space to 1.59. If the market does finally enter into some meaningful consolidation, we should limit the bullish outlook to a common resistance at 1.63. The GBP/JPY has not turned bearish yet, and is in a neutral-bullish mode. However, it is testing the 169.50-170 area, and at the cusp of introducing a bearish outlook toward the 2014-low at 163.87 if price fails to hold above 169. If price holds above 170 after the week is over, there is still upwards bias, and the 175.36 high on the year will still be in sight.
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