GBP/USD to Target $1.21 on UK Inflation and BoE Monetary Policy

It is a busy day for the GBP/USD. UK inflation will draw plenty of interest this morning. Following the wage growth and unemployment numbers, today’s figures could force the Bank of England to deliver another sizeable rate hike in December.

Economists forecast the UK annual inflation rate to accelerate from 10.1% to 10.7%.

After today’s stats, the Bank of England will also be in the spotlight. BoE Governor Andrew Bailey, Ben Broadbent, Catherine Mann, and Swati Dhingra will give testimony at the Treasury Select Committee hearing on the November Monetary Policy Report (1415 BST).

References to Tuesday’s wage growth, today’s inflation figures, and the Bank’s plans to bring inflation to target will influence. The BoE delivered a grim economic outlook, which may also face scrutiny.

Away from the economic calendar, the UK Government’s Autumn Budget will remain an area of interest. Chancellor Jeremy Hunt will deliver the Autumn Budget on Thursday, the UK Government’s first test. In the lead-up to the announcement, Hunt has continued to warn of ‘difficult announcements.’

GBP/USD Price Action

At the time of writing, the Pound was up 0.03% to $1.18657. A mixed start to the day saw the GBP/USD rise to an early high of $1.18750 before easing back.

Technical Indicators

The Pound needs to move through the $1.1877 pivot to target the First Major Resistance Level (R1) at $1.2014 and the Thursday high of $1.20289. In line with or better-than-expected inflation figures would support another breakout session.

In the case of an extended rally, the GBP/USD would likely test resistance at $1.21 but fall short of the Second Major Resistance Level (R2) at $1.2166. The Third Major Resistance Level (R3) sits at $1.2455.

Failure to move through the pivot would leave the First Major Support Level (S1) at $1.1725 in play. However, barring a risk off-fueled sell-off, the Pound would likely avoid sub-$1.17 and the Second Major Support Level (S2) at $1.1588.

The Third Major Support Level (S3) sits at $1.1300.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The GBP/USD sits above the 50-day EMA, currently at $1.16367. The 50-day EMA pulled away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A hold above S1 ($1.1725) would support a breakout from R1 ($1.2014) to target $1.21. However, a fall through S1 ($1.1725) would bring the 50-day EMA ($1.16367) and S2 ($1.1588) into view. The 200-day EMA sits at $1.14584.

The US Session

It is a busier day ahead on the US economic calendar, with retail sales and industrial production due. We expect retail sales numbers for October to have more influence on the dollar and the NASDAQ Composite Index.

With the probability of a 75-basis point December rate hike falling to 14.6%, upbeat consumption numbers and hawkish Fed chatter could shift sentiment. FOMC members Williams, Barr, and Waller will speak later today.