GBP/USD Price Forecast: Weak US CPIs to Give the Pound a Look at $1.22

It is another quiet day ahead on the UK economic calendar. There are no UK economic indicators to provide the Pound with direction.

There are also no scheduled Monetary Policy Committee member speeches to provide direction. The lack of stats and Bank of England commentary will leave the Pound in the hands of market risk sentiment ahead of the key UK economic indicators due on Friday.

While the focus remains on UK Q2 GDP and manufacturing and industrial production figures, which could define the next BoE policy move, US CPI numbers will have a material impact on the GBP/USD pair.

Recent US economic indicators placed monetary policy divergence in favor of the dollar. However, weak CPI numbers could ease pressure on the FED and shift divergence in favor of the Pound. Such an eventuality would likely see the Pound target the August high of $1.22932.

GBP/USD Price Action

At the time of writing, the Pound was up 0.07% to $1.20824.

This morning, the Pound fell to an early low of $1.20648 before moving into positive territory.

Technical Indicators

The Pound will need to move through the $1.2089 pivot to target the First Major Resistance Level (R1) at $1.2115 and the Tuesday high of $1.21298.

Movement in the GBP/USD pair will ultimately hinge on today’s US CPI numbers.

In the event of an extended rally, the GBP/USD pair could test the Second Major Resistance Level (R2) at $1.2156 and resistance at $1.22. Weak CPI numbers would bring $1.22 into play.

The Third Major Resistance Level (R3) sits at $1.2223.

Failure to move through the pivot would likely see the Pound test the First Major Support Level (S1) at $1.2048.

In case of an extended sell-off, the GBP/USD pair could test the Second Major Support Level (S2) at $1.2022 and support at $1.20. A spike in US inflation would pressure the GBP/USD pair.

The Third Major Support Level (S3) sits at $1.1955.

Looking at the EMAs and the 4-hourly candlestick chart (below), it is a bearish signal.

At the time of writing, the Pound sat below the 100-day EMA, currently at $1.20940.

After Monday’s bearish cross, the 50-day EMA narrowed to the 100-day EMA, while the 100-day EMA held steady against the 200-day EMA, delivering bearish signals.

A 50-day EMA narrowing to the 100-day EMA would leave support levels in play.

However, a GBP move through the 100-day EMA would bring the 50-day EMA (1.21080) and R1 (1.2115) into view.

The US Session

It is a big day ahead, with the all-important US CPI numbers due later today. We can expect market sensitivity to the numbers that could define the Fed’s next policy move.

However, investors will also need to consider the fact that another round of private sector PMI, NFP, and inflation figures will be out before the next FOMC meeting. Oil prices have fallen sharply since levels seen at March and June’s recent peaks, which could temper market bets of a Fed response to the July numbers alone.