All Change for GBPUSD Before UK & US CPI

There is still a bullish sequence in GBPUSD. This is a sequence of higher highs & higher lows. BUT, since the high at 1.2575 on January 7th GBPUSD has fallen hard & fast. It has been driven lower by news from the gilts market that yields (interest rates paid on gilts) are rising to levels not seen since the Truss fiasco. Possibly as a response to the UK's worsening fiscal position. Interest rates are moving higher, the economy is flatlining & inflation is squeezing higher. This is not a good mixture for the currency. The gilts market news is relatively new & possibly still being priced in.

Some strategists only consider the technical picture when explaining what could happen. I mix the technical analysis with the fundamental backdrop to formulate an opinion.

The gilts news is relatively new & the situation may continue for some time before the UK position improves. President-elect Trump, despite his initial utterings on tariffs & immigration expulsions to minimise the effect of his policies and keep the economy performing well, could impose tariffs at lower levels than expected & not expel enough undocumented agriculture workers to produce a spike higher in inflation. This may keep the US economy performing well & encourage more US Dollar buying.

So, I have changed the technical picture to possibly include a move below 1.2037. If this does happen there is support at 1.1865. Price can bounce from there to 1.2300. But after that, we may either trade immediately lower, depending on just how the UK & US economies perform. Or trade in a lower range, between 1.1500 & 1.2500.

PS. Also watch out for the UK 10-year gilt auction tomorrow. The result may be announced around mid-day. If it goes badly we could see the pound under pressure.