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Although inflation in the UK slowed down slightly less than forecasted, reaching 8.7% instead of the expected 8.5%, the pound actively lost its positions. Initially, it was rising, so the reason for its decline lies in a different aspect. It all comes down to the Bank of England, or more precisely, the statement made by BoE Governor Andrew Bailey. He claims the pace of consumer price growth will slow down twofold by the end of the year, which essentially rules out the possibility of further interest rate hikes. Although he did not mention interest rates explicitly, this conclusion logically follows from his words. Considering that such statements contradict the reality observed, investors naturally became concerned and started to get rid of the pound.
All this has made the situation with the overbought dollar even worse. However, as we witnessed from the previous week, significant reasons like favorable macro data are necessary at least for a hint at a rebound. The problem is that only the US unemployment claims report will be released today. The total number of the applications should go down by 6,000 due to the continued claims, the number of which may decrease by 9,000. And these continued claims hold much greater significance than initial claims. So there is no reason for the dollar to weaken.
The GBP/USD pair, in the course of an intense downward movement, has fallen below the support level of 1.2350. This indicates the prevailing bearish sentiment, which leads to ignoring technical signals of oversold conditions in the short-term and intraday periods.
The RSI is moving in the oversold zone on the intraday period, which may indicate that short positions are overheated.
On the 4-hour chart, the Alligator's MAs are headed downwards, confirming the direction of the corrective movement.
Outlook
Keeping the price below the 1.2350 level may lead to further declines. In this case, the ongoing correction from the peak of the medium-term trend would transition into a prolonged correction. However, even in this scenario, it would still be an uptrend in the medium-term.
As for the upward scenario, traders view it as a staged recovery. To execute this, the price needs to slow down its downward cycle, consistently staying above the 1.2350 level. Afterward, long positions for the British pound could gradually rise.
The comprehensive indicator analysis in the short-term and intraday periods points to the downward cycle.
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