Yesterday brought a host of positive news for the pound sterling. Although the growth in the UK industrial production slowed, the data was well above the forecast.
The growth pace slowed down to 3.7% from 3.8%, whereas analysts had expected a fall to 3.2%.
In addition, the previous report was revised upwards to 4.4%. The UK industrial production advanced by 0.8% instead of 0.4% MoM, as expectedy.
In general, the industrial production report significantly exceeded the forecast. The situation in this segment of the UK economy is much better than expected.
It's no wonder that the pound surged.
US Inflation Data Steals the Show
However, the US inflation data overshadowed the UK industrial production report.
It is the main event of the week. Economists had expected that the indicator would remain unchanged.
But, it grew to 5.4% from 5.3%, paving the way for the Fed to launch the quantitative easing (QE) program's tapering as early as November.
The US dollar rose after the data was out. An hour later, the greenback lost all gains and fell. Comments by various representatives of the US financial sector could have caused the drop.
Each of them said that the regulator might announce the QE tapering after a new jump in inflation.
Notably, both the inflation rate and the labor market conditions point to higher inflation.
This could be considered an attempt to put pressure on the Fed to postpone the tightening of the monetary policy.
For the financial sector, a reversal of the QE policy could drive the financial market.
This, in turn, may cause a lot of difficulties. Nevertheless, the Fed has to consider all the factors and not only the short-term interests of the financial sector.
The regulator may ignore the ideas that contradict the long-term economic growth prospects.
Today, the situation may change, and the US dollar is likely to resume gaining in value.
Although the US unemployment claims forecast is optimistic, the data will hardly affect the market sentiment. The number of first-time claims could decline by 11,000, whereas continuing claims may drop by 65,000.
At the same time, the US producer price index may alter the market situation. In the best-case scenario, the PPI could climb to 8.5% from 8.3%.
A jump to 8.7% wouldn't be out of the ordinary either. Since the PPI is a leading indicator for inflation, its growth indicates that inflation is unlikely to stop surging soon.
But, the US inflation rate may continue moving up. As a result, the US Fed would have no option but to tighten the monetary policy. Thus, the PPI figures may settle the issue of the timing of the QE tapering.
GBP/USD - Technical Outlook
GBP/USD has been trading near the resistance area of 1.3620/1.3650 for the past week, entering a sideways channel of 1.3540/1.3670.
On the four-hour chart, the RSI technical indicator is hovering near the 50 line, signaling stagnation.
The 23.6 Fibonacci level lies in the middle of the sideways channel, proving the balance in the market.
Pound Could Break Out After Accumulation
The pound/dollar pair may continue hovering within the range of 1.3540/1.3670 for some time.
This may lead to the accumulation process, thus causing an upward impulse.
If the predictions come true, traders are better off applying a breakout strategy.
Trading Strategy
Traders may open buy positions after the price consolidates above 1.3680.
Once the price fixes below 1.3640, one can go short.
In terms of the complex indicator analysis, technical indicators provide mixed signals on the one-minute and one-hour charts due to a sideways channel.
According to the technical analysis, traders could get selling opportunities in the mid-term.
InstaForex Group