The ECB meeting results should have determined traders’ sentiment for the next few months. But it failed to meet markets’ expectations. Investors had anticipated Christine Lagarde to announce that the key interest rate would be hiked by 0.50% in July.
However, the interest rate will be raised only by 0.25% at the next meeting. In September, the central bank plans to raise the benchmark rate by another 0.25%. Judging by grave inflationary woes, the market had expected a more aggressive approach.
The ECB has upwardly revised its inflation forecasts for the next three years. Thus, inflation will be higher than anticipated, whereas interest rates will be lower. The euro immediately started losing value, affecting the pound sterling.
Since inflation is now one of the most important indicators, the US inflation report's publication is vital. According to the forecast, the indicator will stay at the same level of 8.3%. It means that inflation in the US has stopped rising, thus reducing risks.
Meanwhile, in Europe, forecasts for inflation have been significantly raised. This situation will inevitably lead to the greenback’s appreciation, allowing the pound sterling to leave the sideways channel by breaking the lower limit instead of the upper one.
Technical Outlook
Due to a positive correlation with the euro, the pound/dollar pair began falling. As a result, the price again approached the lower limit of the range of 1.2450/1.2500.
On the four-hour chart, the RSI technical indicator moves in the lower area of 30/50, thus providing a sell signal. However, the signal is unstable as the quote hovers within the range. On the daily chart, the indicator is moving along mid-line 50, pointing to the price stagnation.
On the four-hour chart, the Alligator’s moving averages have numerous intersections even though the indicator is headed downward. Alligator does not have a stable signal in the short-term and intraday periods.
The pound/dollar pair is still moving within the sideways channel. That is why a rebound from the lower limit is entirely possible. Traders are still considering the breakout strategy as the main one.
- Buy orders could be initiated if the price consolidates above 1.2600 on the four-hour period with the target at 1.2660-1.2720.
- Traders may open sell positions if the price settles below 1.2450 in the same time frame with the target at 1.2350-1.2300.
Regarding the complex indicator analysis, technical indicators signal mixed opportunities in the short-term and intraday periods amid the sideways movement. In the mid-term period, the indicator also provides mixed signals due to slackening correction. Under the current conditions, uncertain signals from technical indicators may cause dramatic changes in the trading chart.
