In-Line UK inflation good enough for GBP

Market chart
Joe Perry
By :  ,  US Market Analyst

UK inflation for December increased by 10.5% YoY, as expected, but was lower than the November reading of 10.7% YoY. The Core CPI reading was 6.3% YoY, a touch stronger than the estimate of 6.2% YoY and unchanged from November. And with that, Sterling continued its move higher as the data may have cemented the 50bps hike on February 2nd that traders are expecting.  Some GBP pairs were volatile on the day and gave back alot of the Pound’s gains due to other factors, such as GBP/USD and GBP/JPY.  However, GBP/CAD was strong on the day, closing up nearly 200 pips. 

The daily chart of GBP/CAD looks pretty clean on the daily timeframe, with price trending higher in the path of least resistance.  The pair rose at an aggressive pace from early November 2022 to mid-December 2022 as the RSI moved into overbought territory.  GBP/CAD pulled back as the RSI unwound and paused at the 50 Day Moving Average near 1.6104.  On Wednesday, the pair jumped from 1.6454 to 1.6656 as the inflation data from the UK pointed to a less dovish BOE.  Resistance levels are at the December 15th, 2022 highs of 1.6850, then horizontal resistance at 1.6949.  Above there, price can move to the 2022 highs at 1.7378.  First support is at the current level of the 50 Day Moving Average near 1.6287, then the lows from January 6th at 1.6104.  If price breaks below there, the next support level isn’t until the 200 Day Moving Average at 1.5786.

Daily GBP/CAD Chart

Source: Tradingview, Stone X

UK inflation data was roughly in-line, which backs the case for the expected 50bps rate hike by the BOE on February 2nd.  Therefore, if one is looking to get long GBP, but isn’t sure which fx pair to use, the GBP/CAD chart looks pretty clean with room for it to run to the upside.

Related tags: Trade Ideas Forex CPI GBP CAD

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