GBP/USD risks correction towards 1.4250 ahead of UK CPI?

• Profit-taking slide cannot be ruled out ahead of UK inflation report.
• Chart-driven selling could gain momentum below the 1.4280 support area.

The GBP/USD pair stalled its tepid recovery and now retreats towards yesterday’s low of 1.4283, as the investors believe that the recent GBP buying has been overdone on Brexit optimism and increased expectations of a Bank of England (BOE) May rate hike.

Moreover, markets look to take profits off the table after the solid run up to fresh post-Brexit vote tops of 1.4377, as the focus shifts towards the UK inflation report due at 0830 GMT. Markets are expecting a flat reading for the UK’s March CPI report.

Also, a BOE May rate hike is already priced-in by the markets and hence, a further corrective move lower cannot be ruled out. The reversal in Cable from multi-month tops was fuelled yesterday by the below estimates UK average weekly earnings report.

However, the persisting risk-on rally in global equities could keep the corrective slide limited, with markets awaiting the sentiment on the European open.

GBP/USD levels to watch

Jim Langlands at FX Charts writes, “… the short term charts now look a little heavy and, back below 1.4280 would hint at a possible to the Fibo levels at 1.4220, and then to 1.4200 and 1.4160 ahead of more substantial, Fibo support at 1.4120. On a more cautious mote, it could be that the daily charts are now showing some bearish divergence, hinting that a medium-term top may already be in place and I do not think we are going back above 1.4375 today, so for a day trade, I would look to sell a rally towards 1.4350 with an SL at 1.4380.”