GBP/USD: Trading the British CPI Mar 2014

British CPI (Consumer Price Index), which is released each monthly, is an inflation index which measures the change in the price of goods and services charged to consumers. A reading which is higher than the market forecast is bullish for the pound.

Here are all the details, and 5 possible outcomes for GBP/USD.

Published on Tuesday at 9:30 GMT.

Indicator Background

Analysts consider CPI one of the most important economic indicators. An unexpected reading can quickly affect the direction of GBP/USD.

CPI continues to drop, and made news headlines when the January release dipped below the 2.0% level, the first time that has occurred in over four years. The markets are expecting the downward trend to continue, with the February estimate standing at 1.7%.

Sentiments and levels

GBP/USD has hit a serious tailspin, and much will depend on British retail sales and CPI numbers this week.  The taper train continues to chug along in the US and this has helped the dollar. US employment numbers have generally been solid and market sentiment with regard to the US economy remains positive. So, the overall sentiment is neutral on GBP/USD towards this release.

Technical levels, from top to bottom: 1.6705, 1.66, 1.6475, 1.6343, 1.6247, and 1.6163.

5 Scenarios

1. Within expectations: 1.5% to 1.9%. In this scenario, GBP/USD could show some slight fluctuation, but it is likely to remain within range, without breaking any levels.
2. Above expectations: 2.0% to 2.3%: A stronger reading than predicted could push the pair above one resistance line.
3. Well above expectations: Above 2.3%: An unexpectedly sharp rise in inflation could push GBP/USD upwards, with a second line of resistance at risk.
4. Below expectations: 1.1% to 1.4%: A lower than expected reading could pull the pair downwards, with one support level at risk.
5. Well below expectations: Below 1.1%: A very poor reading could result in the pair breaking a second support level.

For more on the pound, see the GBP/USD forecast.

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