The inflation concern of the BoE was highlighted in the latest BoE Inflation Report. With CPI inflation above 2%, there is less a prospect of increasing stimulus, or QE, and a higher chance of a rate hike getting closer. The decline seen in the GBP/USD ahead of the report was rejected from going below 1.62.

GBP/USD

Doji:
- The 1H chart shows that during the release of the BoE Inflation Report, a doji appeared. With the tail mainly pointing south, it reflects a rejection from below 1.62 (low was 1.6190), although the lack of a strong bullish candle suggests indecision heading into the US session.
- This rejection brings the GBP/USD back in consolidation. In a ranging market, we tend to pullback towards the mean (200sMA, or 50% retracement), near 1.6325-1.6340. Only a break above 1.6360 confirms bullish intent towards the range highs starting 1.6450.
- 1.6546 is the next pivot above the range highs.
- Also, the bullish scenario should be accompanied by the RSI rising above 60, and preferably above 70 if we are to test and possibly crack the range highs.
- In the 4H chart, the RSI should break above 60 to confirm that bullish momentum is maintained after a consolidation period.
Support
- This rejection from going below 1.62 also  sets up an important support zone here. A break below this suggests that the bears do not fear inflation, and want to push the sterling lower against the greenback.
- The 4H chart shows that we are currently in a corrective state against the previous 5-wave rally representing a possible leading triangle.
- A push below 1.6190 can lead to a deep correction down towards 1.6127, 50% retracement, or 1.6045, 61.8% retracement.


Are you convinced that the BoE won’t be messing with QE? Does this give fire under GBP/USD as the US does not have this inflation worry?
Subscribe and become a member to share your views and join live discussions as well as webinars about the markets.

Fan Yang CMT
Chief Technical Strategist
FXTimes

Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analysis.