The British CPI (Consumer Price Index), released monthly, measures the change in the price of goods and services charged to consumers. A reading which is higher than the market 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
The Consumer Price Index is considered the main and most important inflation indicator. The index is important for currency traders, since if the index rises, for example, the central bank will be inclined to raise interest rates in order to keep inflation under control. In turn, higher interest rates make the pound more attractive to investors. Conversely, lower inflation may lead to lower interest rates to boost economic activity.
The CPI has dropped for three consecutive readings, and was down to 4.2% for the January reading. The markets are calling for a further drop in inflation, predicting a reading of 3.6%. Will the CPI continue its downward trend?
Sentiments and levels
The pound has had an excellent 2012 and has performed well against the dollar. Industrial and manufacturing production exceeded market forecasts, indicating some improvement in the UK economy. Thus, the overall sentiment is bullish on GBP/USD towards this release.
Technical levels, from top to bottom: 1.60, 1.59, 1.5780, 1.5730, 1.5706, 1.5670, 1.5629 and 1.5520.
5 Scenarios
Within expectations: 3.3% to 3.9%. In this scenario, GBP/USD could show some slight fluctuation, but it is likely to remain within range, without breaking any levels.
Above expectations: 4.0% to 4.3%: A reading inicating higher inflation than expected could push the pair above one resistance level.
Well above expectations: Above 4.2%: An unexpectedly sharp rise in inflation would likely trigger higher interest rates, pushing GBP/USD upwards, and possibly breaking two or more lines of resistance.
Below expectations: 2.9% to 3.2%: A lower than expected reading could pull the pair downwards, with one support level at risk.
Well below expectations: Below 2.9%: Such a reading could push GBP/USD downwards, and the pair could break two or more support levels.
For more about the pound, see the GBP/USD..