Pound Consolidates – Focus Now On CPI Data

Dear Traders,

Those who had been looking for sustained breakouts or extended gains on Monday had been disappointed by the market’s consolidation phase. The pound sterling traded sideways within a 100-pip trading range between 1.2435 and 1.2335. Given the fact that the pound was unable to hold above the 1.24-level, we expect upcoming bearish momentum in the GBP/USD. As long as sterling remains below 1.2430 we see a higher likelihood of a downside break below 1.23 which could accelerate bearish momentum towards 1.22 and possibly even 1.2050.

How the cable will trade within the next days will mainly hinge on the Brexit trigger, which will happen on March 29. Prime Minister Theresa May plans to invoke Article 50 of the Lisbon Treaty next Wednesday, starting two years of exit talks. A hard Brexit will be negative for the currency, so traders should prepare for downward movements. However, before Article 50 is triggered, the pound could retest the 1.24-mark and possibly even the 1.2470-level on stronger inflation figures. U.K. Consumer Prices are scheduled for release at 9:30 UTC and a rise in inflation could help pushing the pound higher in the short term.

The euro traded consolidated between 1.0775 and 1.0720. A renewed break above 1.0770 may prompt euro bulls to buy the single currency toward 1.0815. A break below 1.0720 however, could lead to further losses towards 1.0680. With no market-moving economic reports from the Eurozone, we expect the price action to be limited to a range of 1.0820 – 1.0680.

Towards the end of the North American trading session some Fed officials are scheduled to speak. Any hawkish comments could have a positive impact on the U.S. dollar.

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