The pair rallied above the 0.8400 level on board-based Pound sterling selling. Intraday bias remains bullish as long as support 0.8220 holds. It hit a high of 0.84223 and is currently trading around 0.84092.
The UK is witnessing stagflation as the economy experiences stagnant growth, with high rates of inflation. The latest data on GDP show zero growth for Q3 2024. Estimates for the year 2025 are at modest recovery to the tune of 1.2% to 1.7%. The inflation rate remains at around 2.6% but could overshoot the Bank of England's target at 2%, mainly due to increasing public sector wages and probably National Insurance increases. This is a dilemma for the Bank of England, which traditionally lowers rates in stagnant growth but high inflation makes it harder. Furthermore, the yield on UK gilts has risen to 5.25%, meaning businesses are being forced to pay more to borrow. Investor sentiment is extremely cautious, as protracted stagflation threatens to seep into consumer confidence. Undervalued assets in energy and healthcare could still be opportunities.
Technical Analysis
The pair is currently trading above the 34- and 55-EMA on the 4-hour chart.
- Bearish Trend Confirmation: Any break below 0.8380 confirms an intraday bearish trend. A drop to 0.8300/0.8260/0.8220/0.8190 is likely.
- Near-Term Resistance: Current resistance is around 0.84500. Any violation above will push towards 0.8500/0.8580. The bearish outlook would be invalidated only if the price goes above 0.8500.
Indicator Analysis (4-hour chart)
- CCI (50): Bullish
- Average Directional Movement Index: Bullish
Trading Recommendation
It is good to buy on dips around 0.8380, with a stop loss around 0.8340 for a target price of 0.8500.
