It has been a tremendous three day run by the Pound Sterling against the USD. However, we are seeing a retracement off of Monday’s highs. The move is likely a product of static U.K. inflation statistics coming during the U.S. overnight session.

British CPI and PPI reports either hit analyst expectations or underperformed. As a secondary metric, December’s Retail Price Index for the U.K. outperformed projections. In the wake of today’s economic releases, traders have decided to put the brakes on and reevaluate the GBP.

GBP/USD Technical Outlook

There isn’t a whole lot on the economic calendar facing the GBP until the Retail Sales numbers on Friday. The USD is wide open as well, with only housing data slated to hit the wires on Thursday. A pullback buy from an area of support may possible in coming sessions for the GBP/USD.

In the presence of such a clear three-day rally, a Fibonacci retracement buy is a solid way to enter the market with the trend. Price is currently well above this level, but if Monday’s high remains valid resistance, the trade may setup in coming sessions.

As of this writing, price is rotating near 1.3775, in a relative no man’s land. There are two levels to watch on the daily timeframe, each on the opposite horizon:

• Resistance(1): Swing High, 1.3818
• Support(1): 38% Retracement, 1.3680

Bottom Line: It appears as though the GBP/USD may be in for a period of prolonged rotation. After the dramatic bull run of the past week, price has settled down on the muted inflationary conditions facing the GBP.

I will have buy orders in queue just above the 38% retracement at 1.3685, with the stop loss at 1.3649. This level is a prime area for going long with the prevailing intermediate-term trend. A 1:1 R/R management scenario produces over 30 pips profit.