GBP/USD - Bearish MA cross, US-UK yield spread rises ahead of UK CPI

• GBP/USD short-term technicals favor the downside.
• 10Y US-UK yield spread rises in the GBP-negative manner.
• All eyes on the CPI.

The GBP/USD fell for the second day yesterday and closed at 1.3337, leading to a bearish 5-day MA and 10-day MA cross. Yesterday's close was also below 1.3350 (38.2% Fib R of Oct-Dec rise). Further, it also breached the support of the ascending trend line (drawn from Nov. 14 low and Nov. 28 low). Clearly, the short-term technicals have turned in favor of the bears.

Also, the 10-year US-UK yield spread rose to 118 basis points (bps); its highest level since Aug. 15. The widening of the yield spread in the GBP-negative or USD-positive manner only adds credence to short-term bearish technicals.

That said, only a close below 1.3288 (50% Fib R of Oct-Dec rise) would confirm the bearish view, says Reuters report.

Focus on UK CPI

A weaker-than-expected UK CPI release could yield a break below 1.3288 levels. Kathy Lien from BK Asset Management writes, "the UK economy is performing better since the BoE raised interest rates in November but at the time, they said inflation peaked, which suggests that tomorrow's CPI report could come in softer. If they're right and price pressures eased in November, then GBP/USD could take out 1.33 easily."  

GBP/USD Technical Levels

FXStreet Chief Analyst Valeria Bednarik says, "technically, the risk is toward the downside according to the 4 hours chart, as the price was unable to regain ground above a bearish 20 SMA, now breaking through a major support, the 61.8% retracement of its late November bullish run. Indicators in the mentioned chart head lower within negative territory, also supporting a bearish extension towards 1.3300, en route to 1.3260, once the first gives up."

 Support levels: 1.3300 1.3260 1.3220

Resistance levels: 1.3345 1.3380 1.3420