Pound Crashes After Unexpected Drop In Inflation

The Pound fell nearly 180 pips after topping at 1.5387 against the US Dollar, as the UK inflation unexpectedly plunges below zero. The release of September CPI data showed that inflation fell by 0.1% compared to a year before, being this the second time inflation goes negative in the last 55 years.

Technical Analysis

The GBP/USD pair traded as low as 1.5199 a fresh 5-day low before bouncing some, so far unable to regain the 1.5260 level, a strong static resistance.

In short term, the 1 hour chart shows that the technical indicators have bounced strongly from extreme oversold levels, but lost upward strength below their mid-lines, maintaining the risk towards the downside.

In the same chart, the 20 SMA heads strongly lower a few pips above the mentioned resistance level. In the 4 hours chart, the technical indicator have also turned north from near oversold levels, but remain well below their mid-lines, whilst the 20 SMA is gaining bearish slope far above the current level.

Overall, the downward risk prevails, particularly on renewed selling interest below 1.5230 the 23.6% retracement of the latest weekly decline.

UK Inflation

Inflation as measured by the Consumer Prices Index fell to -0.1% in September, official figures have shown.

The Office for National Statistics (ONS) said that a smaller than usual rise in clothing prices, and falling motor fuel prices, were the main contributors to the drop in the rate.

The CPI rate has been at or close to zero for most of this year. It was last in negative territory in April.

Trade Idea

Considering the overall technical and fundamental outlook, buying the pair could be a good strategy if we get a valid bullish reversal candle on daily chart.

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Usman Ahmed

Usman Ahmed is an individual forex trader and market analyst. He holds a Masters of Business Administration (MBA) degree. His work includes fundamental and technical reports on various currency pairs, commodity futures and stock markets. His technical analysis features price action strategies.

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