GBP/USD is making a tight consolidation pattern on its shorter-term time frames (1-hour and 15-minute charts), as traders await the release of the UK CPI data.
Annual inflation is expected to reach 3.0% in June, after climbing from 2.4% to 2.7% in May. This would imply that inflation is way beyond the central bank’s 2.0% target, which would mean that the Bank of England has very limited options when it comes to loosening monetary policy.
A reading in line with expectations or higher might trigger pound buying, as it would imply that the BOE will be less inclined to lower interest rates or increase asset purchases in the near future. A lower reading could be bearish for the pound.
A straddle trade for the release might be a good strategy, as the pair found resistance at 1.5115 and support around 1.5085. Going long at around 1.5125 or going short at 1.5075 could work for a day trade. Aiming for the previous lows around 1.5000 or the previous highs at 1.5200 with tight stops could yield a decent reward-to-risk for a day trade.
By Kate Curtis from Trader’s Way