The British pound currency has continued to hold above the 1.2800 level against the US dollar at the start of the trading week as the UK economy has a series of important events this week.
Firstly, the UK releases CPI numbers on Tuesday. Expectations are for headline Year on Year inflation in the UK to fall to 8.5% from 8.7% with the core rate seen ticking lower to 6.7% from 6.8%.
The prior report saw a decline in headline inflation to 8.7% from 10.1%. Should we inflation dropping as expected then we could well see sterling retreat somewhat.
Then we have the BoE Rate decision. Most economists expect the BoE to raise rates by another 25 basis points, taking the Base Rate to 4.75%. This highest in well over a decade.
Markets are largely pricing in a 25-basis point hike. It is largely priced into sterling. There is a small chance of a 50 basis points move. It seems unlikely given the fragility of the UK housing market.
Despite GBPUSD trading at 1.2800, Elliot wave analysis also show that a final correction may have happened and the GBPUSD pair is in the stages of a WXY play, with the final Y wave to create new highs towards 1.3000.
Looking at sentiment data and how traders feel about sterling, the ActivTrader Market Sentiment tool shows that traders are growing more bearish despite the recent sharp price reversal.
With 78% of traders are currently bearish and it should be noted that this current sentiment reading is highlighting that sterling still has much scope to trade even higher.
GBPUSD Short-term Technical Analysis
Looking at the four-hour time frame, a clear uptrend is happening after the price moved above the 1.2600 level, with the GBPUSD pair possible targeting 1.3000.
According to technical analysis, MACD divergence may cause a minor correction, with the overall size of the divergence extending down towards the 1.2750 level.
GBPUSD Medium-term Technical Analysis
According to the daily time frame it shows that that GBPUSD pair has undergone a classic Elliot wave correction, with a 1,2,3,4,5 wave higher, and ABC correction done.
The WXY sequence is now playing out, we can see a ramp towards the 1.3000 level, following this worrying drop towards 1.2300. Watch out for a big ramp higher if 1.3300 if we crack 1.3000 this month.