GBP/USD in a Flag Breakout; Key UK Inflation Data Ahead

GBP/USD in a Flag Breakout; Key UK Inflation Data Ahead

GBP/USD continues to be bearish in 2015. Last week, it fell to 1.5034 before stalling ahead of the NFP. After a mixed batch of US jobs data, the GBP/USD rallied to end the week. This week, price retreated before tagging 1.52 as shown in the 1H chart below:

GBP/USD 1H Chart 1/12
gbpusd 1h chart 1/12
(click to enlarge)

Flag Breakout: In the 1H chart, note that there was a bearish divergence as the RSI neared overbought readings. After that price retreated and broke below a very short-term flag pattern. This is a sign of bearish continuation. We can use some more confirmation, but being that the prevailing trend is bearish, we can be more assertive in the bearish continuation outlook.

Pending Bearish Signals: If price can push below 1.51, it would clear a support pivot, and the 100-, and 50-hour SMA. Also, the 1H RSI should break below 40, which would show loss of the prevailing bullish momentum.

Bullish Correction Scenario; Resistance:
If GBP/USD holds above 1.51 and returns above 1.5176, the pressure returns to 1.52, with risk of extending the bullish correction this week. Any bullish outlook at the moment should be limited to the short-term. There is a pivot around 1.53, and the strongest outlook should be limited to the 1.5485-1.55 area, which represent a key support area during December. (Refer to the daily chart below). There would also be a falling trendline from July’s high of 1.7191 to challenge a bullish outlook around that 1.5485 area if price does get there by next week.

GBP/USD Daily Chart 1/12
gbpusd daily chart 1/12
(click to enlarge)

UK Inflation: A key fundamental factor for the GBP/USD and the pound in general will be Tuesday inflation data. The CPI is expected to have increased only 0.7% on the year in December. This would prompt a letter from the BoE Gov. Mark Carney to the Treasurer. Essentially, there would be a lot of attention placed on the falling inflation in the UK, which should be a drag on the GBP/USD. Cable looks poised to continue the downtrend which has the 1.50 area in sight for this week.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at