GBPUSD hits Pre FOMC targets – Bears run for cover?

GBP specs shorts hits a new records since 1992. Hence, it’s only a matter of time before bears scream and run for cover. Let’s run through the UK events as GBPUSD hits Pre FOMC targets. What can traders expect next?

22 March, AtoZForex – UK inflation data came in much hotter than anticipated on Tuesday. Cable sure loved the good news by pushing through the 1.2450 handle in morning London trade on Tuesday. Euro was also seen to have been boosted by strong performance of Emmanuel Macron in the French Presidential debate as the single currency poked above the 1.0800 level.

UK CPI printed at 2.3% versus 2.1% eyed while core reading rose to the key 2.0% level from 1.8% forecast. The core reading is now above the BoE’s target rate and was the real reason for the pound rally, as markets begin to price in the possibility of a rate hike.

Although Governor Carney and other members of the MPC have repeatedly stated that UK inflation is temporary phenomenon, the policy makers will find it quite difficult to ignore the inflationary pressures within the system if the data continues to impress over the next few months. A rate hike sooner rather than later could boost pound and act as a natural cap on any inflationary pressure.

GBPUSD hits Pre FOMC targets, what next?

GBPUSD hits Pre FOMC targets, what next? GBPUSD Daily Chart (Click to zoom)

The net short in the cable is at the most extreme level seen since records began in 1992. It’s been sold heavily from -60K in the final week of February. It’s the clearest sign yet that specs are piling into shorts and looking for a quick profit on Article 50. Usually, that’s the kind of thing that often blows up in the other direction thereby trapping the bears.

In our previous piece Pre FOMC GBPUSD Technical Outlook we categorically stated that GBPUSD should be bought only on dips. With our targets of 1.2415 printed, we expect more from cable going forward. With the article 50 ready to be invoked on the 29th of march, we remain bullish the cable. Technically, GBPUSD on the daily frame concluded it’s map regardless of the political uncertainty in the region.

So far, it has been working closely with the fractals formed with the high of November 2016 and the low of January 2017. If this fractal is correct, we expect the cable to make a new high around the 1.26-27 (200-Day MA)region.

Verdict: Buy GBPUSD on dips with 1.2700 as the next targets as long as 1.2200 support remain unbreached.

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