GBPUSD Up After UK CPI Data, Forms Double Bottom Hinting More Upside Potential

GBPUSD
GBPUSD

GBPUSD is trading slightly higher today following the UK CPI data for February. As of this writing, the currency pair is up by 0.67% or 78.3 points at 1.1838.

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According to the Office for National Statistics, the headline CPI figure for February was higher at 1.7% compared to a year ago. This figure came in line with expectations and follows the 1.8% uptick seen for January. Meanwhile, the core reading which excludes volatile items topped the 1.5% forecast when it also printed at 1.7%.

The report shows that prices in recording media, restaurants, and hotel rose to counter the drop in fuel. However, it’s worth noting that these numbers reflect conditions before the BOE took on easing measures in response to the coronavirus. Therefore, despite the uptick inflation which usually has a bullish effect on GBPUSD, this report may not bear too much weight on the central bank’s future decisions.

GBPUSD Outlook

However, it’s worth pointing out that the technical setup on the currency pair suggests there may be buyers in the market. On the 4-hour time frame, we can see that GBPUSD has bounced off support twice. Consequently, a double bottom chart pattern has formed. Considered as a bearish reversal signal, this is characterized when a market gets rejected at a support level twice. For GBPUSD, that support level was 1.1470.

As of this writing, the currency pair is testing resistance at the neckline and trend line resistance (when connecting the highs of March 9 and March 11). A strong close above the highs of March 20 at 1.1932 would effectively break the confluence of resistance. It could then mean that GBPUSD is on its way to rally to 1.2392 where it could test the 100 SMA.

On the other hand, reversal candles around 1.1932 could mean that there are still sellers in the market. GBPUSD may then retest its recent lows at 1.1470.

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