{x} | Trading.live

Abstract: The consumer price index (CPI) in the UK increased by 6.7% in September, higher than the expected 6.6%. The core CPI (excluding energy, food, alcohol, and tobacco) slowed down from 6.2% to 6.1%, higher than the expected 6.0%. On a monthly basis, CPI rose by 0.5% month-on-month, higher than the expected 0.4% and faster than the previous month's 0.3%.

Fundamentals

The UK's inflation unexpectedly increased at the same rate in September as last month, making the task of the Bank of England (BOE) more complicated as it seeks to continue to depress inflation. After the data was released, the GBPUSD rose slightly. The market expects that there will be no major changes in the BOE's policies.

According to data released by the Office for National Statistics on Wednesday, the annual CPI in the UK recorded 6.7% in September, which was the same as that in August, after the market expected 6.6%. The core inflation rate excluding fluctuations in energy and food prices rose by 6.1% year-on-year, in line with market expectations. On a monthly basis, CPI rose by 0.5% month-on-month, higher than the expected 0.4% and faster than the previous month's 0.3%.

As far as this month is concerned, the UK CPI rose by 0.5%, which is in line with expectations. Annual data show that price pressure may be more stubborn than expected, even though the core estimate does drop slightly compared with August.

At the same time, today's data adds to the task of the BOE, because it is trying to keep the inflation rate close to the target of 2% and avoid the economy falling into recession. The BOE decided to keep its benchmark interest rate unchanged at 5.25% last month, which is the first time it has not decided to raise interest rates in the past two years.

After the UK inflation data was stronger than expected, the GBPUSD rose slightly, hitting an intraday high. The money market priced yesterday that the BOE will further tighten monetary policy by 16 basis points before January next year.

We believe that although the CPI failed to drop in September, the BOE may not raise interest rates at its next meeting, especially considering that the CPI is still lower than the BOE's expectation of 6.9% in August. Worryingly, the service industry inflation rate rebounded from 6.8% in August to 6.9% in September, but it still maintained most of the decline of 7.4% in July; Therefore, the BOE can say that the domestic price pressure has eased faster than expected.

In addition, due to the new energy cap policy introduced by the UK Office of Gas and Electricity Markets (Ofgem), inflation may drop sharply in October. However, the new risk is that the situation in the Middle East will limit the decline in inflation next year.

Technical Analysis

Since testing the 16-month high of 1.3142, the GBPUSD has been forming a descending structure of declining highs and lows. The GBPUSD has rebounded modestly from seven-month lows but has not recovered as the completion of the previous death cross still puts downward pressure on the current momentum.

Meanwhile, in the short term, both the Relative Strength Index and the Stochastic Oscillator are consolidating, and hopes for a sustained rise for the bulls have not been extended.

If the downtrend recovers, bears may first test the recent support level of 1.2121. Breaking the lower limit may pave the way for a seven-month bottom of 1.2036. If it fails to stay here, the GBPUSD may fall to the March low of 1.1800.

Or, if the bulls reappear and push up the price, they will first break through the triangle consolidation we have drawn up, and then they may rise to the recent rejection area of 1.2338. After breaking through this area, the GBPUSD may test the resistance zone of 1.2446 from December to January last year, which coincides with the 50-day and 200-day SMAs, and any further rise should stop there.

Overall, the GBPUSD is currently consolidating in a triangular consolidation range, with the bulls trying to stop its continued decline, but its rallies are quickly falling into the grip of the bears. Whether or not the bulls can usher in a counterattack will require the triangle convergence pattern to keep converging, which is just a goal shot away at the moment, and we hope for the best. It is recommended to buy the dips.

Trading Recommendations

Trading direction: Long

Entry price: 1.2140

Target price: 1.2375

Stop loss: 1.2000

Deadline: 2023-11-01 23:55:00

Support: 1.2123, 1.2106, 1.2084

Resistance: 1.2223, 1.2304, 1.2338