Yesterday, the market was flat. Today, however, the pound sterling went up right at the opening of the Asian session. This can be interpreted as a purely speculative increase. On Friday, there was nothing that could justify it. Therefore, a pullback was inevitable.
Today, a lot will depend on inflation data in the eurozone. Inflation is expected to accelerate to 2.7% from 2.2%. Amid growing concerns about surging global prices, such a sharp rise in inflation will definitely spook investors. Indeed, it may well hamper the recovery in the eurozone that has just begun.
Being faced with a similar situation, the Federal Reserve has already been preparing some measures to support the economy. Meanwhile, the European Central Bank continues to pretend that nothing terrible is happening, which concerns market participants. The European regulator may unexpectedly swing into action, and the market may not be ready for it.
Anyway, growing inflation in the eurozone will lead to a stronger US dollar, affecting the pound sterling. It is all about a classic trading strategy “Buy the rumour, sell the fact”. Consequently, the subsequent drop in the pound sterling may well be even more significant.
Eurozone Inflation:
The quote is trading around the resistance zone of 1.3780/1.3800, which corresponds to the 50.0% and 61.8% Fibonacci retracement levels. A decrease in the volume of long positions is possible, which is likely to lead to the end of a corrective move.
The Relative Strength Index (RSI) value is around 70, indicating that the British currency is overbought. In such a case, the price may reverse.
On the daily chart, the pair is moving down from the 1.4000 level. The price has declined by 50%. For the downward trend to stop, a 70-75% correction should occur.
Outlook
A decrease in the volume of long positions may take place in the range between the 50.0% and 61.8 Fibonacci retracement levels. This may lead to a shift in market sentiment and the beginning of a downward trend. If so, the price may fall to 1.3730, 1.3670, and 1.3600. The latter indicates the pound's downside potential.
Alternatively, in case of consolidation above 1.3890, the downward trend is likely to end.
In terms of complex indicator analysis, based on short-term and intraday time frames, technical indicators are signaling long positions due to a corrective move.
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