The British Pound (GBP) gained on Monday afternoon after UK and EU leaders struck a preliminary agreement for a 21-month Brexit transition. The deal was a positive surprise for GBP, which gained nearly 1% against the US dollar, reaching its highest level in three weeks. This morning saw the release of UK CPI data, which was softer than expected. CPI rose at an annualized 2.7% against 2.8% forecast and 0.4% during February against 0.5% expected. Although the CPI data may take some pressure off the Bank of England (BoE) to hike interest rates, policymakers will also be looking at rising wage growth. The Office for National Statistics will release wage growth data on Wednesday. These figures will be an important driver to expectations for interest rates going into the BoE’s announcement on Thursday.
Yesterday, on the 4-hourly chart, GBP/USD broke above the 50% retracement of the drop from January highs at 1.4020. The pair is now testing the level from above after the CPI data. If 1.4020 holds, a continuation of the bullish move will find resistance at 1.4070, followed by the 61.8% retracement at 1.410 and then 1.4145. A reversal and break of 1.4020 will lead to a move towards major support at 1.3910.
The recent strength in GBP, combined with continuing weakness in the Australian dollar, has given the GBP/AUD pair a boost to the upside. On the daily chart, the pair broke above long-term resistance at 1.8000 and is now stalling at the Feb 2016 lows near 1.82730. Bullish traders may look to buy any dip to 1.8000, which confirms the breakout. A break of 1.82730 could see a continuation of the trend towards resistance at 1.8500 and then 1.8800. On the flip-side, a bearish reversal below 1.8000 would negate the outlook, with support at 1.7900 and then 1.7600.
