FX.co ★ GBP/USD – October 8: Inflation Remains High in the UK Economy

On the hourly chart, GBP/USD rebounded on Wednesday from the only possible resistance level — the 100.0% retracement level at 1.3272 — reversed in favor of the U.S. dollar, and declined toward the 1.3164–1.3177 support level, with the decline continuing on Thursday. A rebound from this zone would allow for a new rise in the pound toward 1.3272. Consolidation below the support level would increase the chances of a continued decline toward the next Fibonacci level of 161.8% at 1.3025.

The market situation remains completely bearish. The latest completed downward wave broke below the previous low, while the latest upward wave failed to break above the previous high. Thus, bears continue to control the market. A tightening of FOMC monetary policy and the hawkish outlook conveyed by Kevin Warsh sharply strengthened the dollar's position. A break of the current trend is now possible only above 1.3284 or after the formation of two bullish waves.

The information background on Wednesday was unrelated to the movements that traders saw on the charts. Bears launched another attack without having sufficient and convincing grounds for doing so. However, similar movements have been observed regularly in recent weeks and have already become routine. The minutes of the Federal Reserve's September meeting showed only the FOMC committee's readiness to implement another tightening before the end of the year, which had already been clear immediately after the September meeting's results were announced. It should be noted that "dot plot" projections are released once every three months and reflect changes in policymakers' views. Also yesterday, Bank of England policymaker Catherine Mann stated that inflation above 2% has become firmly entrenched in the British economy and that certain efforts and measures will now be required to bring it back to the target level. "Inflation has become part of our lives," Mann stated. Catherine Mann also expressed concern that inflation could rise to 4% by the end of the year, while many companies will hold negotiations with employees over wage adjustments toward the end of the year. Wages may be increased based on high inflation, which would further reinforce the sustained rise in prices in the United Kingdom.

On the 4-hour chart, GBP/USD reversed in favor of the U.S. dollar after rebounding from the 76.4% Fibonacci level at 1.3277 and forming a bearish divergence on the CCI indicator. The decline resumed toward the 100.0% retracement level at 1.3159. A rebound from this level would allow for a new rise. The technical picture on the hourly chart is currently more convincing, so it should be given preference.

Commitments of Traders (COT) Report:

The sentiment of the "Non-commercial" trader category became even more bearish over the latest reporting week. The number of Long positions held by speculators decreased by 13,059 for the fifth consecutive week, while the number of Short positions decreased by only 4,552. The current gap between the number of Long and Short positions is effectively 41,000 versus 132,000. The bears' advantage is increasing again. Previously, the bears' dominance raised no questions, but the situation is now different because the information background has changed in recent months.

The bearish trend in the pound remains unconvincing, but in the near term, everything will depend on Trump's trade policy, the monetary policies of the Federal Reserve and the Bank of England, as well as the duration, scale, and consequences of the war in the Middle East. In recent months, the market has adjusted to expectations of peace, but negotiations between Iran and the United States failed before they had properly begun. It is also uncertain whether they will resume in the near future.

News Calendar for the United States and the United Kingdom:

• United States — FOMC meeting minutes (18:00 UTC).

On October 8, the economic events calendar contains one minor entry. The economic background will have no influence on market sentiment on Thursday.

GBP/USD Forecast and Trading Advice:

Selling opportunities arose after a rebound from 1.3272 on the hourly chart, with a target of 1.3164–1.3177. These trades can remain open today. New short positions can be considered after a close below the 1.3164–1.3177 level, with a target of 1.3025. Long positions can be considered today after a rebound from the 1.3164–1.3177 level, with a target of 1.3272.

The Fibonacci levels are drawn from 1.3272–1.3674 on the hourly chart and from 1.3158–1.3655 on the 4-hour chart.