GBP/USD struggles despite CPI surprising to the upside. Gold pressurized by reflation trade.

GBP/USD struggles despite inflation surprising to the upside
 

Despite the upbeat CPI data GBP/USD struggles under US Dollar strength after US Treasury yields spiked (FXB, UUP).

Downside could be limited given the optimism surrounding the strong UK vaccine rollout and plans to lift covid restrictions.

Attention will now turn towards US retail sales and FOMC minutes for clues as to the next steps the Fed could take and whether the reflation trade has merit.

GBP/USD technical analysis

After hitting a fresh 34 month high at 1.3950 on Tuesday, GBP/USD eased lower on USD strength.

GBP/USD remains on the back foot, although has picked up off the lows in the early European session. 

On the 4 hour chart, GBPUSD trades in an ascending channel pattern dating back to early February. The price is currently testing the lower band of the channel at 1.3870 and the confluence of 20 sma. 

A breakthrough support at this level could see 1.3850 tested ahead of the 50 sma at 1.3820. 

Given that the RSI is neutral a move beyond here appears unlikely for now.

Should the price fail to break through the lower band of the channel, resistance at 1.3950 ahead of the key 1.40 psychological level will be the targets for the bulls.

Gold pressurized by reflation trade

Gold trades under pressure sub $1800, overwhelmed by the spike in treasury yields in the revival of the reflation trade.

With more US fiscal stimulus coming and optimism of a vaccine led economic recovery US treasury yields hit the highest level since February 2020.

Higher returns on US debt hits demand non-yielding gold

Attention will now turn to US Retail Sales and the minutes from the latest FOMC meeting for direction.

Gold technical analysis

After 5 straight days of declines, Gold struck $1786 overnight an almost two week low. At the time of writing it has just eased up slightly back over $1790, but the path of least resistance remains southwards

Gold (GLD) trades comfortably below its 20 & 50 sma on the daily chart and below a descending trendline dating back to mid-August showing an established bearish trend.

The RSI is supportive of further downside given it is below 50 but still some way from 30 the oversold level.
Immediate resistance can be seen at $1785 the monthly low with further support seen at $1765 December’s low. A meaningful move beyond this level could see $1748 June 29th low.

A pullback could see Gold attempt to break above 20 sma at $1830. In a break above this level, bulls would be looking for validation from horizontal support at $1843 before testing $1853, the convergence of the 50 sma with the descending trend line.