Pound Slumps On Disappointing Inflation Data

Dear Traders,

The biggest story in the Forex market on Wednesday was the sharp drop of the British pound. The pound extended its losses towards 1.4170 following the release of disappointing U.K. inflation data. Inflation fell to 2.5 percent, the lowest level in a year and investors fear that the lower reading could encourage Bank of England policy makers to postpone an imminent rate hike in May. Consequently, expectations for a rate hike next month dropped to a 65 percent probability, down from 87 percent.


From a technical perspective, we saw the pound rushing through a previous support-area between 1.4250 and 1.4220 which turned into a current resistance now. A lower support now comes in at around 1.4145. However, traders should bear in mind that the overall uptrend is still intact and with the next BoE meeting (and a potential rate hike) still three weeks away, buyers may take the opportunity to buy pounds at lower levels.

We will keep tabs on a price range between 1.4250 and 1.4140 now. If the pound breaks out of that range we might see momentum accelerating to the respective direction. A lower support is seen at 1.4090, whereas for the bullish bias to resume it would need a renewed break above 1.4315.

The U.K. Retail Sales report is due for release today at 8:30 UTC.

In contrast to the high volatility in the GBP/USD, we have seen a lackluster price development in the EUR/USD. The pair is still range-bound and this long period of range (three months already) has discouraged many traders from trading the EUR/USD. However, there have been some profitable trading opportunities but larger swings tend to be rare at the moment.

We are still looking for an upside break of the 1.24-barrier and if that breakout happens our patience could pay off. Based on the recent uptrend channel we expect a higher bullish target to come in at around 1.2470. Bears in the EUR/USD should, however, wait for a significant break below 1.23.

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