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GBP/USD Holds Above 1.53 Despite Soft Inflation Data

As expected, inflation in the UK fell. The 0.3% annual rate in January's was the lowest since record began in 1960 according to the ONS, and as reported by Reuters News


(click to enlarge; source: forexfactory.com)

The December reading was 0.5%. We can see that there has been a steady decline in inflation since mid-2013. It stabilized a bit in the first half of 2014, but then slid again as oil prices plunged. If we take out oil and some other volatile items, the core CPI reading was 1.4%, which was actually higher than December's 1.3%. 

Furthermore factor prices at the gate as well as retail prices fell, also on due to declining oil prices. 

GBP/USD 1H Chart 2/17


(click to enlarge)

The GBP/USD made a new high on the month to start the week, and then began to consolidate. Ahead of the inflation data, cable was heading towards 1.53. After the inflation data, there was a brief dip that came close to 1.53, but found buyers. 


Note that 1.53 was where the 200-hour SMA resides, and was also a previous resistance pivot. This level was also reinforced by February's rising speedline. So far, the reaction suggests further upside in the GBP/USD.

Now, if price fails to push above 1.5385, then we would see weakness from the GBP/USD-bulls. Since 1.53 has just proven to be support, a break below it at this point could be a strong signal for the downside because it would show capitulation of the bulls in this market. That would first open up the 1.52 level. Then, if price stays below the 1.5350 area, we might be looking at a bearish continuation back towards the 1.4950 low on the year, with risk of pushing lower.