While the euro still lacked a clear direction the British pound showed some larger moves on Tuesday after U.K. inflation data came in unchanged at 0.6 percent, disappointing analyst forecasts of a rise to 0.7 percent. Sterling fell more than 100 pips from our short-entry after consumer prices held steady in August. The question therefore arises whether the Bank of England believes that there is a need for a further rate cut to stimulate growth and push inflation nearer towards the central bank’s 2 percent target. The BoE is expected to keep interest rates unchanged at tomorrow’s meeting, but policymakers could still cut them further by year-end. The pound therefore remains a sell on rallies.
The U.K. Labor Market report is scheduled for release at 8:30 UTC today and may help paint a clearer picture of the situation of the U.K. economy in the aftermath of Brexit.
Sterling traders should pay close attention to the next support area at 1.3160/50. A significant break below that level could send sterling towards the next support at 1.31 from where it could bounce back. With sterling trading above 1.3150 we anticipate a slight correction towards 1.3250 and possibly even a renewed test of 1.33.
The euro remained confined to its narrow 60-pip trading range and euro traders must exercise patience. The euro would now need to break below 1.1170 to reinvigorate fresh bearish momentum. With no major economic data scheduled for release from the Eurozone, we expect the pair to continue its sideways trend between 1.1250 and 1.1170. We recommend traders to take profits at smaller targets if there are any.
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