GBP/USD Overview for October 21: Inflation Will Complicate the Situation for Both the Fed and the Bank of England

[Redator]

The GBP/USD currency pair showed no meaningful movements on Monday. In this article, we focus on upcoming events that could (theoretically) influence the pair's direction. "Theoretically," because for the past three weeks, the market has been actively ignoring many factors that typically work against the U.S. dollar. Simply put, if the dollar had been falling these last three weeks, we would consider it entirely justified.

However, the British pound, like the euro, remains stuck in a flat range on the daily timeframe. From its current levels, GBP/USD could still fall another 250 pips and stay within the bounds of this flat market. And once the flat range is over, a new trend will eventually follow. While the dollar could technically gain several hundred points in the medium term based on technical factors alone, it's unclear what fundamental reason might support it starting a full-scale uptrend.

Two significant events this week will be the consumer inflation reports from both the United Kingdom and the United States. In both cases, an acceleration in prices is expected. However, the implications for the Bank of England and the Federal Reserve will differ.

For the BoE, the pace of inflation is less critical. Inflation has been running above target for over a year now—almost double the official target—so it's becoming increasingly clear that the BoE is unlikely to lower interest rates any time soon.

For the Fed, inflation is also not a key factor—at least not in the short term. The Fed is widely expected to cut rates twice more before the end of the year, as failure to do so could result in severe labor market strain. However, entering 2026, inflation will regain importance. Fed Chair Jerome Powell and most members of the FOMC have reiterated their commitment to both mandates—employment and price stability—stating clearly that persistently high inflation would make further policy easing unlikely. For now, the labor market takes priority, but once it stabilizes, inflation concerns will come to the forefront again.

In essence, while inflation may rise on both sides, the Fed is expected to continue easing, whereas the BoE is likely to hold steady. This asymmetry supports a stronger British pound and gives little support to the U.S. dollar. We still believe that most dips in the pair are either technically-driven or simply flat corrections. The market may still need time to stabilize as market makers build large, long-term positions—after which a new trend may emerge. We don't expect that trend to be bearish unless Donald Trump dramatically reverses his policy approach, which, while not impossible, seems unlikely at the moment.

The average daily volatility for GBP/USD over the past five trading days stands at 77 pips—a level characterized as "average." On Tuesday, October 21, we expect the pair to move within the range defined by the levels of 1.3342 and 1.3496. The upper linear regression channel remains upward-sloping, confirming a bullish tendency. The CCI indicator has entered oversold territory three times, which suggests a resumption of the uptrend may be near.

Nearest Support levels:

S1 – 1.3367

S2 – 1.3306

S3 – 1.3245

Nearest Resistance levels:

R1 – 1.3428

R2 – 1.3489

R3 – 1.3550

Trading Recommendations:

The GBP/USD pair is attempting to resume the 2025 bullish trend, and its long-term outlook remains intact. Trump's policy continues to exert pressure on the dollar, so we see limited upside potential for the U.S. currency.

Long positions remain relevant above the moving average, targeting levels of 1.3672 and 1.3733. If the price moves below the moving average, short positions may be considered with technical targets of 1.3342 and 1.3306.

The dollar occasionally experiences technical corrections, but for a sustained upward trend, it would require a fundamental shift—such as a dramatic resolution in trade negotiations or other significant global economic catalysts.

Explanation of Chart Tools:

• Linear Regression Channels: Help identify the current trend. If both channels are pointing in the same direction, it indicates a strong, directional trend.
• Moving Average Line (settings 20,0, smoothed): Identifies short-term momentum and the recommended trading direction.
• Murray Levels: Serve as target zones for both expansion and correction phases.
• Volatility Levels (Red Lines): Represent the expected price range over the next 24 hours based on current volatility data.
• CCI Indicator: Values above +250 or below -250 suggest overbought or oversold conditions, signaling a potential trend reversal.

The material has been provided by InstaForex Company - www.instaforex.com