Streets of London, UK. Image source: Pedro Szekely, flickr.com
The British pound has advanced against most major currencies over the last couple of weeks as the global energy squeeze prompted investors to seek refuge in lower-risk securities. Nevertheless, there are some early signs of a potential rebound on the price of the EURGBP, indicating that the market is already pricing in the extra volatility.
Earlier today, the Office for National Statistics reported that British headline inflation edged down last month, missing the consensus forecasts. This came as a bit of a surprise given the observed surge in U.S. consumer prices over the same period.
EURGBP 2H Price Chart. Image source: Trendsharks ©, created with TradingView.com
As can be seen on the 2H chart above, the news jolted slightly the advancing pound during today's trading session, indicating a potential rebound currently in the making.
Even though it is still way too early to declare a decisive bullish reversal because of the general uncertainty that continues to plague the market, and several key developments warrant closer observation by traders. Most significantly, the price action appears to have established a Double Bottom, which is a type of pattern that typically indicates the likely beginning of new uptrends.
Thus, the preceding downtrend may have already bottomed out at the major support level at 0.84250. Meanwhile, the two EMAs comprising the MACD indicator suggest recuperating bullish momentum.
The first major test will be at the 0.84600 threshold, which underpins the previous swing peak (also, the upper limit of the Double Bottom pattern). This psychological barrier also coincides with the Ichimoku Cloud, making it a crucial make-it-or-break-it barrier.
Consumer prices in Britain remain close to a multi-year peak
UK MoM Inflation Rate. Image source: TradingEconomics.com
Headline inflation edged down to 3.1 per cent in September, just below the 9-year high of 3.2 per cent that was recorded a month prior. The preliminary forecasts were not projecting any changes to the inflation rate, given the heightened demand that was brought about by the energy crisis.
A moderate decline in global economic activity could have contributed to the decrease in UK consumer prices.
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