GBP/USD: Trading the British CPI January 2013 outlook

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The British CPI (Consumer Price Index), which is released each quarter, is an inflation index which measures the change in the price of goods and services charged to consumers. A reading which is higher than the market forecast is bullish for the pound.

Here are all the details, and 5 possible outcomes for GBP/USD.

Published on Tuesday at 9:30 GMT.

Indicator Background

Analysts consider CPI one of the most important economic indicators and is used by the BOE to set its inflation target. An unexpected can affect the direction of GBP/USD.

Inflation in the UK has been fairly robust, with CPI rising by 2.7% in each of the past two readings. This is the highest rate of inflation the UK has experienced since June. The markets are expecting an identical rise in the January release.

Sentiments and levels

GBP/USD continues to display volatility in January, with the pound making some gains this week in thanks to the ECB rate decision. The gains were the result of broad dollar weakness rather than any positive news out of the UK. The British currency will have trouble sustaining any upward momentum if UK releases continue to be weak, such as last week’s manufacturing data. Thus, the overall sentiment is bearish on GBP/USD towards this release.

Technical levels, from top to bottom: 1.6475, 1.6343, 1.6247, 1.6122, 1.6060 and 1.5992.

5 Scenarios

  1. Within expectations: 2.4% to 3.0%. In this scenario, GBP/USD could show some slight fluctuation, but it is likely to remain within range, without breaking any levels.
  2. Above expectations: 3.1% to 3.4%: A stronger reading than predicted could push the pair above one resistance line.
  3. Well above expectations: Above 3.4%: An unexpectedly sharp rise in inflation could push GBP/USD upwards, with two or more lines of resistance at risk.
  4. Below expectations: 2.0% to 2.3%: A lower than expected reading could pull the pair downwards, with one support level at risk.
  5. Well below expectations: Below 2.0%: A reading at zero or in negative territory could result in the pair breaking two or more support levels.

For more on the pound, see the GBP/USD forecast.

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About Author

Kenny Fisher - Senior Writer A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.

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