Trading The GBP/USD Ahead Of The U.K. CPI Report

The buyback appears to be on, with the U.S. indices posting a strong session to open the week. As of this writing, the DJIA is up over 400 points, with the S&P 500 adding 37. Huge volumes have defined the last several weeks of trading, with today’s action continuing the bullish tone of last Friday’s close.

After a light-news Monday, the coming 18 hours features several potential market movers:

Country                             Event

U.K.                                   CPI (Jan.), House Price Index (Dec.)

Japan                                Machine Tool Orders (Jan.)

Australia                           NAB Business Confidence (Jan.)

The headliner of this group of metrics is the CPI numbers from the U.K. Analysts are forecasting a drop to 2.9% from 3.0%. While the impact of this statistic on the GBP/USD is likely to be considerable, it may prompt a directional move. If you are holding open positions into the release, be sure to manage your leverage accordingly.

GBP/USD Technicals

As my colleague Skerdian discussed earlier, the GBP/USD has shifted from a long-term uptrend to a market dominated by bearish sentiment. The coming U.K. CPI number may drive values even lower.

Here are several areas to watch for the remainder of the session:

• Resistance(1): Bollinger MP, 1.3907
• Resistance(2): Daily SMA, 1.3993
• Support(1): Macro 62% retracement, 1.3796
• Support(2): Macro 78% retracement, 1.3653

Bottom Line: In the event that this market continues the current downtrend, I will be going long from the 78% retracement level (1.3653). Buy orders from 1.3656 with an initial stop at 1.3624 produces over 30 pips on a 1:1 R/R management plan.

This trade may become active on the release of the CPI report. If so, be sure to have your stops down and leverage in check ahead of time.