Last week, the pound continued its upward trend against the dollar settling at the 1.3746 level. It is currently trading at the same level it was on June 2016. The question among traders is whether the current bullish run will continue. This week will be a decisive one and could determine the short-term movement for the currency.
On Tuesday, at 9:30Am (GMT), the Office for National Statistics (ONS) will publish its inflation figures for December.
As you recall, in December, the agency released the core inflation figures of 3.1%, which was higher than expected. It was also higher by 1.1% than the BoEs target of 2%. As a result, Mark Carney, the BoE chairman will be forced to write a letter to the UK Chancellor explaining why this happened and what they are doing.
Most likely, Carney will talk about Brexit and the weak pound, which has made the price of commodities to fall. The last time such a letter was written was 6 years ago.
Tomorrow, traders expect the ONS to release the Core Inflation of 3.0%.
As you recall, in their October meeting, the BoE made its first step to normalization but indicated no other rate increases this year. Tomorrow’s data could change this. Remember, one of the key roles of central banks is to control the level and rate of inflation.
A figure above 3.0% could lead to a change of BoE’s mind.
As I wrote a week ago, a breakout above 1.3600 would be a significant move. Now, the pair has already achieved that.
I believe the pair is currently overbought and a minor correction may be inevitable. As shown below, the RSI is at unsustainable level of 80. Therefore, we should wait for a 38.3% retracement.