Weaker inflation report had traders focused on other currencies

While the EURUSD, AUDUSD and NZDUSD surges, and the USDJPY and the USDCHF fall post the weaker retail sales report, the GBPUSD has just now been able to take out the European session high at 1.57457(other pairs are well ahead). There is a governor on the rally it seems. Why?

Earlier today, the Bank of England released its quarterly inflation report. In it, Gov. Carney said inflation would remain subdued before returning to the target in two years. They also lowered economic growth forecast through 2017. Further, the BOE said it's forecasts are based on gradual interest rate increases, starting in mid-2016. So there is not a lot of hurry to buy the GBP even if the US prospects for a 2Q recovery were dashed once again with the weak data.

Technically, looking at the hourly chart, the action has been up and down today. In addition to the inflation report, the employment report actually was a bit better with wages higher than expectations. This initially sent the GBPUSD to new highs. The inflation report sent the price back down. The pair is just getting above the high for the day, but it is not exactly racing.

Although the bulls are more subdued, there was a key bullish test at the lows today.

Looking at the daily chart, the price for the pair moved above and closed above the 200 day MA for the first time since August 2015 in yesterday's trading. The low in trading post the BOE inflation report came in at 1.5632 just above the 200 day MA at the 1.5628 level today. Buyers came in against the key level and kept the bulls in control vs that key technical level. That 200 day MA line becomes more important after breaking and successfully testing. The price should now stay above it and indeed move away from it.

So where can the GBPUSD go from here?

Keeping on the daily chart, the next major targets - should the high be taken out - includes the 1.57847 and 1.58794. The first level is the high from December, while the second is the 50% of the move down from the July 2014 high. As is typical, I would expect that if the 50% is tested going forward, it would attract sellers on the first test. Be aware going forward.

What might spoil the bullish party? The midpoint of the days trading range today comes in at the 1.5689. The 61.8% of the move down today comes in at 1.57023. These would be levels to eye for support now. A move below this area would soften the bullish bias.