May 15

GBP/USD advances above 1.2600, all eyes on US CPI data

GBP/USD preserves its bullish momentum and trades at its highest level in nearly two weeks above 1.2600 in the European session on Wednesday. The US Dollar struggles to find demand and allows the pair to stretch higher ahead of April CPI and Retail Sales data from the US.

Technical Overview

After closing above the 200-day Simple Moving Average (SMA), currently located at 1.2540, on Monday, GBP/USD continued to pull away from that key level, reflecting buyer interest. The Fibonnaci 0.5% retracement of the latest downtrend aligns as immediate resistance at 1.2600. Once the pair stabilizes above this level, it could face stiff resistance at 1.2630 (100-day SMA) before targeting 1.2670 (Fibonacci 61.8% retracement).

On the downside, 1.2540 (200-day SMA) aligns as key support before 1.2500 (psychological level, static level) and 1.2450 (Fibonacci 23.6% retracement).


Fundamental Overview

GBP/USD declined toward 1.2500 in the early American session on Tuesday but managed to reverse its direction. Supported by the selling pressure surrounding the US Dollar (USD), the pair climbed above 1.2550 and closed the day in positive territory. Early Wednesday, the pair stays relatively quiet near 1.2600 as investors await key April inflation data from the US.

The USD weakened against its rivals on Tuesday as the market mood improved following the producer inflation data, which showed that the Producer Price Index (PPI) rose 2.2% on a yearly basis in April as forecast. Later in the session, Fedral Reserve (Fed) Chairman Jerome Powell noted that the PPI data was "quite mixed." Powell repeated that it was unlikely that the next move would be a rate hike, adding that they were more likely to hold the policy rate where it is.

The US Bureau of Labor Statistics (BLS) will publish the Consumer Price Index (CPI) figures for April later in the session. On a yearly basis, the core CPI, which excludes volatile food and energy prices, is anticipated to rise 3.6% following the 3.8% increase recorded in March. On a monthly basis, the core CPI is forecast to increase 0.3%.

Investors could react to a surprise in the monthly core CPI reading. A strong increase of 0.4% or more could revive expectations over a Fed policy hold in September and trigger a USD rally, forcing GBP/USD to turn south. On the other hand, a soft reading is likely to have the opposite impact on the USD's valuation and allow the pair to extend its uptrend.