Trading Volatility: UK inflation data for GBP/USD

It is likely to generate raised levels of volatility for GBPUSD. Consumer prices, or CPI, is likely steal the show, but there is also producer price and retail prices to underpin the release. UK headline CPI YoY forecast to drop from 3.2 to 2.7% core CPI (without food and fuel) down from 4.2 to 3.6%. So where's the risk? Well if there's a read-through from this week's US inflation which gave us a ray of hope is the risk to the downside. IGTV’s Jeremy Naylor looks at the potential performance of GBP/USD.

(Video Transcript)

UK inflation data

Now let's take a look at a risk event for the week starting Monday, the 20th of May. I'm looking forward to midweek next week, Wednesday, the 22nd release of the full round of UK inflation data. And it's like generate raised levels of volatility around sterling against whichever currency you want to trade it at. But I'll be taking a look at what's happening with Sterling against the US dollar.

As ever, it's consumer prices that will likely steal the show. Although there is the release of the producer prices, there's the release of at retail prices as well. I want to take a look at the chart where we could well see this volatility potentially trading as we go into the start of the European trading day on Friday. As we look ahead to this number at one 2663 UK headline CPI forecast, a drop from 3.2 to 2.7% core CPI, that's without food and fuel, down from 4.2 to 3.6.

US inflation

So potentially there is the possible risk on the downside. That's if we get a read through from this week's US inflation gave us a ray of hope that the risk is to the downside. So let's set up a trade here. If you're short at one 2663, your stock is above the 127 level and the levels to watch out for this is the main level down here at 123, but we're unlikely to get there in any way, shape or form if you do nonetheless get a very weak number.

The Bank of England

But I think what it's going to do is go to highlight the fact the Bank of England is likely to cut interest rates in August. So from one 2663 price target, one 2446, these lows that we had hit back on the 9th of May and I suspect if you do this correctly and it does move in the way I expect if we do get that downside, that's the stop loss.

Stop loss goes above the 127 level, which will give you the protection if it does continue to move in this with the direction, continue to bring us stop loss to lock in profits.